Today, I closed a trade against Line Energy (LINE) which I opened at the beginning of May (05/07/2014) with expiration in July – next month. I sold 1 put contract with 28 strike and July expiration for 1 dollar (or $100 collected in premiums).
Today, this trade was worthless (it actually cost 0.05) and I could buy it back for $5 and close it and keep $95 in premiums. Thanks to TD Ameritrade 5 cent feature I paid zero commission.
Great trade. I could close it three weeks before expiration, keep almost entire profit and release my margin for next trading.
I have two more trades which may lose value next week. It will be GME 34 strike July contract and BEN 50 strike July contract. Then I might be able to open another trade. But that will depend on my available cash as I am raising cash to stay small and have enough reserves for trade adjustments.
Happy Trading and investing!
Nice series of trades. I will love to have the capital to eventually have a few naked puts open at the same time. Despite the limited resources that I can devote to options right now, I am really liking selling puts vs credit spreads.
At least in my limited experience so far, I’ve found that credit spreads are much harder to manage if the direction turns against you.
Case in point my recent earnings play on LULU: The stock dropped huge after the earnings annoucement and was about $3 under my $40 strike. While I was not against being assigned the shares, I was able to roll it out a couple of times for credit and lowered my cost basis a lot. LULU is up above $40 now but even if it drops I have a profit. I can’t find a way to do that as easily with a credit spread. http://www.twoinvesting.com/2014/06/lulu-earnings…
Also, you probably addressed this before, but how aggressively do you use margin? I was recently approved for tier 3 at TD Ameritrade. That dropped my margin requirement to around $800 for the above LULU trade (vs. the $4000 in BP reduction without margin). Consequently, I have some BP left to put on more trades, though am nervous to do so without the available cash in that account. (Worse comes to worse, I could transfer more funds in.)
Thanks again, Martin. Always enjoy reading your latest posts!
Hi Scott,
THANKS A LOT for visiting.
To your comments, let me answer a few of your questions or comment to a few of your notes. I understand that credit spreads may look like it is hard to manage, but it actually is not. You have to look at them as two separate trades. So if you sell, let’s say a bull put credit spread, then you are 1 contract long put and one contract short put. If the stock starts going against you, then you can completely ignore your long put leg as it is making you money and roll down and longer in time your short put leg as if you had only a naked put. And you try to make it a credit trade again even if you have to sell two contracts to offset the buyback. So I do not necessarily think, credit spreads are hard to manage. It’s just difficult to imagine it as we have it fixed in our minds that the trade must stay together at all time. It doesn’t have to. You are free to break the spread as you wish or need. A great example is iron condor. Many investors are legging in and out of condor as needed, they rarely sell the condor as one trade, but mostly they first sell puts leg and later add call leg.
As far as my margin, I am actually quite aggressive on it, but recently as the market is marching higher and higher, I am deleveraging my account. Great, experienced traders such as Sosnoff, Carter, or Teddi Knight all preach to stay small and do not overdo it. Keep cash for trade adjustments. If the market suddenly crashes, you will need the cash to protect your positions otherwise you will get burned by margin calls. So that’s why I am now increasing cash and slowing down in margin use.
Scott, thanks again for reading and posting a comment. I appreciate it as it encourages me for staying the course in posting my trading/investing ideas and strategy and that there are people reading it.
Thanks!
Excellent trades. It seems like you really have a handle on option trading. And whenever you can sell puts agains positions that you wouldn’t mind owning, it’s a win, win, win situation. Now all you need to work on is volume. I wish you the best.
Respectfully,
Dennis McCain
Dennis, thanks for kind words. Yes I need to work on volume, but that will come soon or later. I need to keep my trades smaller, not overdo it. Since I trade on margin I won’t be able to let all trades to be assigned and need to roll them, so volume can kill me if overextended.
Thanks for your visit and kind words.