Profit Results - CVS & INTC
Trade Results = Profits! Hello Smart Option Sellers! Hope everyone had a good weekend. Let's go over the results of both of the buy-back trades from Friday. Intel Corp (INTC) We had no problem buying back the INTC put-sell position at our desired price of $.05 per contract. Some of you may have even gotten $.04 per. Here's what we did: Bought back (bought-to-close) all of the INTC June 21, 2019 $32 put options for an official buy price of $0.05 per contract as a closing transaction (bought-to-close). Here are the profit details: We originally established (sold-to-open) this put option on January 25, 2019 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 3.125% in just under one month's time. If you like to annualize, that's roughly a 37.5% return. 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. Think of it as collateral. 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 (you can 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 $3,200 = $640. 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 was $640 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/$640 = 3.125%. 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. Congratulations to those who participated. CVS Health (CVS) We decided to close out the put-sell position in CVS mostly because of the class-action lawsuit that was filed right after their quarterly earnings last week. As mentioned in Friday's alert, I wasn't so concerned about the stock price drop due to the lackluster earnings, but I was more concerned about the lawsuit. Who knows if it will amount to anything, but I'd rather walk away with some profits intact, instead of possibly being blind-sided by more potential damaging news. Here's what we did: Bought back (bought-to-close) all of the CVS May 17, 2019 $47.50 put options for an official buy price of $.18 per contract as a closing transaction (bought-to-close). Most of you who bought this position back on Friday got filled at either $.17 or $.18 per contract. As I type, the put option price is near $.15 or $.16 per contract. If you did not place the buy-back trade yet, you can still get filled at good prices. I just wasn't willing to wait this one out for possibly a few more months. Here are the profit details: We originally established (sold-to-open) this put option on January 18, 2019 for a sale price of $.28 per contract, and now we took gains by buying it back (bought-to-close) for $.18 per contract. With the fill at $.18, it locked in a gain of $.10 per contract ($10 for every contract traded) and a return on margin (ROM) of roughly 1% in one month's time. If you like to annualize, that's roughly a 12% return. Also, the fill at $.10 allowed us to capture 35.7% of the full profit potential ($.10 gain/$.28 full potential = 35.7%). Obviously this is much less than our desired 80% threshold, but it was for good reasons. Either way, a win is a win. Congrats again. Housekeeping We currently have two working put-sell trades that have not been filled yet, so let's go ahead and cancel them now, as it looks like neither will be attainable. Here's what you can choose to do: Cancel your sell-to-open orders for the NKE April 18, 2019 $60 put options and for the HACK June 21, 2019 $26 put options. I believe we had one Smart Option Seller member who was lucky enough to get a handful of the NKE put-sell trades done at the time, but I had mentioned back then that it was not enough volume for me to call it official. If you are that lucky person, you could opt to buy the position back at $.05 per contract now and lock in your gains. For everyone else, if you decide not to cancel these and somehow are filled in the future, we will not be following them anymore. You're on your own! That's all for now Continue to hold all other open positions as-is. Contact me here with fills, comments, questions or concerns. Regards,
Lee Let's Grab That Cash!