Trade Results

Profit Results - Coca-Cola (KO) Hello Smart Option Sellers! No problem getting filled yesterday on the KO buy-back order. Fills went across the tape at our buy price of $.05 per contract so that'll be our official mark. Here's what we did: Bought back (bought-to-close) all of the KO June 21, 2019 $38 put options for an official buy price of $0.05 per contract as a closing transaction (bought-to-close). Congrats and well done! Here are the profit details: We originally established (sold-to-open) this put option on January 17, 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 2.63% in three month's time. If you like to annualize, that's roughly a 10.5% 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 $3,800 = $760. 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 $760 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/$760 = 2.53%. 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 again. Trade Update - Merck & Co. (MRK) Well, with the breakdown in the healthcare sector the last two days, the price of MRK stock went along for the ride. This was enough of a drop to allow us to get filled on the new put-sell trade. I'm reluctantly happy that we got filled, only because I believe our fill prices could've been higher had we not pressed on the offer price so quickly the other day. If you read the alert from yesterday, you understand how I feel (not happy) when some of our members sell below my recommended thresholds. It sends a message that we are amateurs and don't know how to play the options game. Use it as a learning experience. At this point, I think the put option should be worth at least $.30 - $.35 per contract, but we'll settle for the $.25 fill price. Here's what we did: Sold (sold-to-open) the MRK September 20, 2019 $55 put options for an official sale price of $.25 per contract as an opening transaction (sold-to-open). MRK stock was at $78.80 on Monday when I first recommended the put-sell trade. The put option had a market of $.24 bid/$.29 offer at that time. Now, two days later, MRK stock has fallen $3 per share, and the put option still has a market of $.24 bid/$.26 offer. It's hard to believe that a stock can fall $3 per share and the put option price hasn't budged? Even the surrounding strikes ($50s, $60s, $65s) haven't budged much in price either. Anyway, we'll take the fill and wait for profitability. If you haven't placed your order yet, continue to do so "GTC" at a sale price of $.25 per contract or higher. Alcoa (AA) Update Remember, AA releases earnings after the bell today. We officially took the hedge trade listed below, and if you want to join in, you must do so before the closing bell today. Here's what we did: Bought (bought-to-open) the AA April 18, 2019 $25 put options for an official buy price of $.15 per contract as an opening transaction (bought-to-open). Since the market will be closed on Friday April 19th for the Good Friday holiday, we will only have tomorrow to make any adjustments on this hedge trade. I only foresee us having to make a move if AA stock drops big. If it rallies, we'll have nothing to do. Let's hope for a solid earnings call. If you have not taken the hedge trade and are still on the fence, you can either look to buy the put options expiring tomorrow, or even for next week's options that expire on April 26. Since AA stock is rallying today, you can buy next week's expiration at very cheap prices. This will give you an extra week to see where AA stock may go. We officially bought the options that expire tomorrow because they were the cheapest on the board, and if the earnings are a big whiff, the stock will make the move quickly enough that we wouldn't need an extra week of time to figue out our next move. If AA does drop big tomorrow, be prepared to take action not only on the hedge trade but possibly the July 2019 roll portion of the trade as well. Stay tuned... That's all for now. Continue to hold all other open positions as-is. Contact me here with fills, comments, questions or concerns. Regards,