Profit Results - MRK

Profit Results - Merck (MRK) Hello Smart Option Sellers! Hope everyone had a great weekend. On Friday we placed a profit-taking trade on MRK, which we had no problem getting filled on. Let's go over the results. Here's what we did: Bought back (bought-to-close) all of the MRK November 15, 2019 $60 put option contracts for an official buy price of $.06 per contract as a closing transaction (bought-to-close). Fills went across at both $.05 & $.06 per contract, but we'll take the official mark at $.06 per. If you did not place the trade on Friday, you can still do so today. I'm seeing an offer price of $.05 as I type. Remember, do not pay more than $.06 per contract. Here are the profit numbers: We originally established (sold-to-open) this put option on July 11, 2019 for a sale price of $0.27 per contract, and now we took gains by buying it back (bought-to-close) for $0.06 per contract. With the fill at $0.06, it locked in a gain of $0.21 per contract ($21 for every contract traded) and a return on margin (ROM) of roughly 1.75% in just under three month's time. If you like to annualize, that's roughly a 7% 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-On