Another Position Update - GPS
Another Position Update - Gap (GPS) Hello Smart Option Sellers! As the volatility continues to roll on during August, we're seeing much larger daily price swings in the markets. Is that a bad thing? Not always. Since volatility is one of the determinants of an option's price, we can be sure that when volatility increases (like it is now), the price of an option will increase, and vice versa. The VIX is a great measure of the overall volatility in the stock indexes. Click here to see a current chart of the VIX. Each individual stock on the other hand, has its own volatility component which affects the prices of that stock's specific options contracts. You can view volatility charts for any stock at a site such as ivolatility.com. When volatility rises, put option (and call option) prices rise, too. That's usually good for us as we can sell the put options at higher rates. On the other hand, for put-sell positions that we already have in place, rising volatility and falling stock prices can lead us to temporarily larger paper losses. This is what's currently happening.with our position in GPS. So What Are We Going To Do? Obviously, many of you who hold the GPS put-sell position have been asking what the plan will be. We currently hold the September 20, 2019 $18 put-sell position, and, we purchased the August 30, 2019 $15 put option last week as a hedge against GPS' earnings report that covered us in case of a huge melt-down. Well, GPS stock initially recovered back to the $18 level last week, but has since been giving up ground again and trades near $15.90 as I type. If the stock stays above $15 by the end of this Friday's trading session, our hedge trade will expire with no value and we'll take a loss on it. At that point, we will have no more protection during the time span until expiration on September 20, 2019. If GPS stock remains below $18, we are going to be prepared to take ownership of the stock. If it somehow miraculously moves back above $18, we will be in the clear. This potentially can be a big moment in Smart Option Seller's history as it will be the first time that we'll hold shares outright. This has never happened before. But don't let that scare you. Holding stock can lead to unlimited upside potential. And, we will then be able to employ our second layer of upfront cash collection via the sale of covered call contracts. It's very exciting and I'm looking forward to putting it into action. Now, here's the thing: If we are assigned and have to take ownership of the shares, you must be prepared to pay for the stock in full. This means you must have the funds in your account to cover the cost of the stock. If you hold one (1) put option contract, then you will be assigned 100 shares at a price of $18 per share. This will require a cash outlay of $1,800. If you hold ten (10) put option contracts, then you will need to cover 1,000 shares, which equals $18,000 of free cash needed. For those of you who might not want to take ownership of the shares, or who don't have the funds to cover the trade - then you have a decision to make. You will have to decide to "roll" the trade if that's what you want, or you can completely close out the position by buying the put options back at their prevailing rate. Profit and loss figures will be determined at that time by wherever the price of GPS stock is trading on Friday September 20, 2019. I of course will be there to offer guidance. I'd have it no other way. For now, we hold. I will give another update this Friday when our $15 hedge trade goes off the board. Ok, that's all for today. Continue to hold all other open positions as-is. Contact us here with fills, comments, questions or concerns. Regards,
Lee Let's Grab That Cash!