Nike Saves The Day...And Friday Q&A
Nike (NKE) Saves The Day Hello Smart Option Sellers! As mentioned over the last few alerts, Nike was slated to release earnings after the bell yesterday. And they knocked it out of the park! They're riding those Air Jordan's to the tune of $5 per share higher at the moment. All we needed was a spark like that to let investors know that companies are still doing well in this environment. So we can see that not all the selling is due to companies missing estimates (because many are beating estimates), much of it is due to fear and panic snowballing onto itself. Nike was there to help calm the nerves and allow cooler heads to prevail. Now, of course not all companies are hitting home runs like Nike, i.e., Big Lots (BIG). If only we could've seen results from BIG to mimic NKE's, we'd all be a bit happier. But the solid news from Nike is the kind of spark needed to possibly help stem the slump. Let's see if we can rally today. As far as the unofficial Nike hedge trade from the other day - you will undoubtedly see those December 21st put options expire worthless today. You don't need to do anything with them as they will just disappear from your account over the weekend. No harm, no foul. It was a smart way to keep losses in check had Nike whiffed on the results. If you bought the December 28 options, then you can just let those ride out for another week. Keep holding. Our current January 2019 Nike put-sell should see a nice drop in price today, which is exactly what we want. The faster it can decay, the faster we can buy it back for a profit. But we're not out of the woods yet with some of our other positions. We need to see a sustained uptrend over the near future to relieve this selling pressure. A move like that would allow some of our put-sell positions to fall back in price. Yesterday really tested my patience with all this selling, as I was very close to sending out multiple "roll" trade adjustments. A bounce at this point should be in the cards. History repeats itself after the type of selling we've seen. Look for a relief rally in the near future. Next week is obviously a big holiday week, so hopefully it will be relatively quiet. That would work wonders for our positions, as with each passing day, time decay kicks in. And it works even better if stocks stay calm. I will check in with everyone sporadically next week, hopefully less than needed. But if today starts to get nasty again, look for another possible alert to execute some "rolls". Let's finish off this week with a few questions. Friday Q&A Q: Hi Lee, Following your suggestion to buy a DITM-Call instead of a security I've got a question: What do You think about "covered" call writings in this case? Any inconvenient consequences? A: Hi, although we're a put-selling service, buying DITM (deep-in-the-money) call options are a great substitute to outright buying stocks. It saves a ton of money, gives better returns, less down-side risk, and gets all the same movement as stocks. Really a no-brainer in my book. Literally, in my book! As far as covered call writing - you mean using the DITM call as the stock in this case? If so, then yes, you can certainly use the DITM call as the "stock" in this case and sell another call option against it. Really no difference. But instead of it being the traditional 100 shares versus selling one call option, you would be engaging in a call option spread. Once again, not much difference. Hope that helps. To get an idea of how this can work in real-time, take a look at my report on how to use it to piggyback Warren Buffett. Q: If the PYPL put option is currently trading at $.10 per contract, how can I still enter a GTC sell order at $.26 like it says in the original instructions? A: We have members who join us at different times of the year and will try to enter new trades after the put option price has moved out of range. In this case, PYPL was valued at roughly $.10 per contract, so obviously it couldn't be sold at $.26 per contract at the moment. In order to follow the instructions properly, you would have to place a "GTC" order to sell the put option at $.25 per contract or better. Many times it won't get filled unless we have strong selling in the market like we've seen over the last few weeks. Placing the order "GTC" allows it to sit there in the marketplace until it's either filled at $.25, or until we place an order to buy it back. Once we've bought the position back, you will need to manually cancel your sell order if it hasn't been filled by then. You will just chalk it up to a missed trade and move on. And just to be clear, selling it at $.10 per contract would be a no-no! That defeats the purpose. Q: Bought to close INTC 01/18/2019 35.00 P for $0.05. Also, I received a maintenance call on my brokerage account today, which prompted me to close the aforementioned trade. How much do you currently recommend that your Put Option Sellers keep in their trading accounts to support at least 10 contracts for each put selling recommendation you provide? A: I'm surprised you still had the INTC position on the books. Were you holding out for it to expire worthless? This is one of the main reasons why we buy the positions back before expiration - to help release margin funds that can be put towards other trades. As far as your account size question: Let's assume we have an average strike price of $45. And let's assume we have 7 active positions at all times. With the 20% margin requirement, you would need to have at least $900 on hand to sell one contract. For 10 contracts, you'd need $9,000. If we have 7 open positions, that's an initial requirement of $63,000. If the stocks start to fall in price, the margin requirement will go up. If the stocks start to rise, the margin requirement should go down a bit. I can't make the decision for you on how many contracts to sell, but those numbers are a good ball-park for 10 contracts. Make sense? Q: Hi Lee-Any news re: the put credit spreads ???? A: Yes, Vertical Spread Trader should be launched in January. The last quarter of 2018 was very busy for me personally, and I just couldn't devote the time needed to launch it then. Keep an eye out for more information after the new year. Thanks for asking! Q: Hi Lee, What if Alcoa expires at 28.25 or 28.65? Is it considered in the money regardless of the cents beside 28? A: A put option is only considered in-the-money when the stock actually falls below its strike price. In your case, $28.25 or $28.65 is not in-the-money. Even if AA closes at $28.01 on expiration, the options are still not considered in-the-money. At that point, you may or may not get assigned on the options. Sometimes when a stock closes a few pennies above or a few pennies below the strike price at expiration, there is usually a 50% chance that you will get assigned. It all depends on what the put-option buyer's position looks like. Well, that's all for today. Have a great weekend and enjoy the holidays. I'll check in with everyone next week sometime. Continue to hold all other open positions as-is. Regards,
Lee Let's Grab That Cash!
Continue to work all other trades as instructed and continue to hold all other open positions as-is. See the Current Portfolio below for current prices & instructions. Note on the Current Portfolio - if you are a new subscriber and don't have a position yet on any of our trades, make sure you enter your order at the original recommended sell prices. Do no enter any order unless the current option price is at, or higher, than the official recommendation. If you are unsure or have any questions, please ask us!