Profit Results - Oracle..Finally!
Profit Results - Oracle (ORCL)...Finally! Hello Smart Option Sellers! The elections are over... and Wall Street seems happy with the results. With congress now split between Democrats & Republicans, the chances of passing any major earth-shattering legislation is quite small. The markets tend to like the status quo which leads to less uncertainty. Hence, stocks are rallying big time today. I think this may be the end of the October correction and stocks now have the green light to continue the uptrend. We're seeing all of our positions move in the right direction again, and today we finally have closure to our Oracle put-sell position. We had initiated a profit-taking buy-back order on Oracle awhile back, of which about half of you were able to get filled. Since I wasn't content with calling it official until the rest of the gang was filled, we sat on the trade until today. I'm happy to announce that everyone has now locked in their gains. Let's go over the final profit results. Here's what we did: Bought back (bought-to-close) all of the ORCL December 21, 2018 $33 put options for an official buy price of $.05 per contract as a closing transaction (bought-to-close). Here are the profit details: We originally established (sold-to-open) this put option on June 26, 2018 for a sale price of $.25 per contract, and now we took gains by buying it back (bought-to-close) for $.05 per contract. With the fill at $.05, it locked in a gain of $.20 per contract ($20 for every contract traded) and a return on margin (ROM) of roughly 3% in four and a half months. If you like to annualize, that's roughly an 8% return. Some of you may have done better if you closed out the trade earlier. You might notice, that although our dollar gains are typically the same for each trade, our ROM can fluctuate quite a bit. The reason being - the strike price has everything to do with how much margin you will be required to hold aside, and thus, will affect your ROM. The higher the strike price, the higher the margin requirement. And vice versa. This is the main reason why I like to focus on lower-priced stocks - typically $50 and under. To understand how the margin works and the calculations involved, here's the breakdown: Whenever we sell an option contract, your broker will require you to maintain a "margin requirement". The margin requirement is made up of funds that are already in your account and will need to be held aside while the trade is active. You are not borrowing money from anyone nor are you paying interest to anyone. Some people can confuse the margin requirement with "trading on margin". They are completely different concepts. We are not "trading on margin" when selling put options (read my margin primer in the members-only section of the website). The margin requirement is typically 20% of what it would cost to buy 100 shares of the stock at the strike price. In this case: 20% x $3,300 = $660. Your specific margin requirement at your broker may be higher or lower than that. If you are unsure, just ask them. Your margin requirement will also have an effect on your final ROM. So for this trade, our margin requirement is $660 per each put option contract sold. Our profit on this trade turned out to be $20 per each put option contract sold. Hence, the return on margin (ROM) comes out to $20/$660 = 3%. Also, the fill at $.05 allowed us to capture 80% of the full profit potential ($.20 gain/$.25 full potential = 80%). When selling options (puts or calls), your full profit potential is capped at what you initially sell the option for. In this case, that amount was $.25 per contract. We like to close trades early (buy-to-close) before expiration when we can capture at least 80% of the full profit potential. This is called my "80% Rule". Locking in early wins is just smart money management and it allows us to free up cash to put towards new trades. Great job everyone! Lastly, now that it seems the uncertainty and selling is over in the stock market, I'll be looking more aggressively to get us into new put-sell positions as the year starts to wind down. Continue to hold all other positions as-is. That's all for today. Contact me here Regards,
Lee Let's Grab That Cash!