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Posts Tagged ‘cash-secured PUT trades’

Option Basics – What Vega Means to the Covered Write

Vega measures the sensitivity of the price of an option to changes in volatility. Vega is the estimate of the change in theoretical value of an option for the 1% increase in implied volatility. A higher volatility means higher option prices while a lower volatility means lower option prices. Vega is the measure of changing volatility on option prices. A higher volatility means an expected higher price swings in the stock.

An increase in volatility will increase the price of options on the stock while a decrease in volatility will cause all options on the stock to decrease. The vega of a long call or put option is always positive while the short calls and puts are negative. At-the-money (ATM) options have the highest vega so they are most sensitive to volatility changes. The further an option goes ITM or OTM, the smaller its vega will be. As volatility decreases for ITM and OTM options, vega is unchanged for ATM options. Vega decreases when time elapses similar to call premium decay. This causes vega to be higher for long dated options than short dated options. Of course, LEAPs have a high vega so an increase in volatility will raise the time value of the option.

For example, a stock that is trading at $35 with a high volatility of .75 with a vega of 30%. The stock option will lose $.30 for every 1% decrease in volatility and gain $.30 for every 1% increase in volatility. If volatility decreases by 20 points, then the stock option will decrease by $6.00. This suggests that you do not want to buy any call or put with a high volatility. Vega can cause option prices to change even if the stock price does not change.

Typically, I do not use vega in covered call trades as I tend to only sell options on stocks below 40% volatility and usually in the current option month. However, vega is important if you use LEAPs as a replacement for stock in a covered call trade.

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New Option Income Trade for 70% Return

Income Opportunity for 70% Option Trade

As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums. This has been successful for our investors for years. Option selling offers another method to diversify investing strategies beyond traditional dividend investing. We have combined technical stock events with our strategy to identify high returns option selling opportunities. This income trade will generate a return of more than 70% annualized.

Stock: Skechers U.S.A., Inc. (SKX) designs, develops, markets, and distributes footwear for men, women, and children; and performance footwear for men and women under the Skechers GO brand worldwide. It operates through three segments: Domestic Wholesale Sales, International Wholesale Sales, and Retail Sales.

Chart: We have detected a “Continuation Diamond (Bullish)” chart pattern formed on Skechers USA Inc (SKX on NYSE). This bullish signal indicates that the price may rise from the close of 39.77 to the range of 44.00 – 45.00. The pattern formed over 50 days which is roughly the period of time in which the target price range may be achieved. Skechers USA Inc has a current support price of 38.21 and a resistance level of 40.37.

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Learn To Make Monthly Income Trading Stocks And Options. Related: Stock Market, Trader, Trading, Investing, Investor, Investment, Option, Currencies, Currency, Swing Trading, Day Trading, Futures, Forex CLICK HERE

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Strategy: We have an opportunity to sell options for income with SKX as the stock should trade higher in the coming weeks. I recommend to place your trade and exit when you have locked in profits due to the stock price moving higher. Our goal here is to make income short term so we can exit and compound capital into another trade.

For medium risk option trade, look to sell a March 2018 40 PUT for about $1.50. This creates a return of 3.9% to expiration (20 days) or greater than 70% annualized.

For a conservative trade, you can setup a covered call trade. You can purchase 100 shares of SKX and sell a March 40 CALL option for about $1.35 for an assigned return of 4.1% in 20 days.

We continue to identify winning option trades to generate income and to exit early as the stock bullish patterns moves prices higher.

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Learn To Make Monthly Income Trading Stocks And Options.

Selling PUTs for High Return Monthly Income

I have created an investment that achieves higher monthly returns while managing stock risks in the trade. You may be skeptical of this concept and should be when you hear something like this introduced into your trading plan. To explain, let’s look at what must happen to a stock price for a successful PUT selling trade. To keep the premium from the PUT sell, the stock price must be above the PUT option strike price at expiration. To increase my percent of winning PUT trades, I invest in stocks with price momentum moving higher. This increases the probability of the stock price closing above the strike price – giving us more winning trades.

How do I identify these winning trades? I combine the fundamentals of a stock with its price performance on its stock chart. I find securities that have a positive change in price that creates upward price momentum. You may have heard about price breakouts and other upward biased chart patterns. This introduces a concept of technical analysis into our trading plan.

Technical analysis uses stock price movements and trading activity as the basis for drawing a conclusion about where the price may be headed. It is based on the premise that prices move in trends that tend to continue until something changes to affect the balance of supply and demand for the stock. These changes can be detected by analyzing prior changes, looking for recurring patterns that indicate a price trend, or indicate areas of support and resistance that may influence the price direction.

SEE THE RESULTS FROM THIS MONTH…

The market was in a blast mode as it ran to record highs again. We had all winners this month with max income trades. And how about the monthly returns on the PUT trades – 4.8% on ARRY; 8.8% on TLRD; 9.6% on NL; and 8.7% on MDXG!!! This is a yearly return on some buy and hold stock investments in a monthly trade for us. We will look for more stock breakouts for PUT trades in our next newsletter.

Sell Put on Array Biopharma (ARRY)

STRATEGY: Look at the December 2017 11 cash-secured put trade. For each 100 shares of ARRY stock you want to control, sell one DEC 2017 11 put option for a $0.50 debit per option or better. That’s potentially a 4.8% return on the cash-secured put trade.

Actions: ARRY is currently trading at $10.82 so the 11 PUT we sold is ITM. Buy to close the PUT before expiration if the stock price is below the strike price of 12. If stock above 12, PUT will expire.

Sell Put on Tailored Brands (TLRD)

STRATEGY: Look at the December 2017 16. cash-secured put trade. For each 100 shares of TLRD stock you want to control, sell one Dec 2017 16 put option for a $1.30 debit per option or better. That’s potentially a 8.8% return on the cash-secured put trade.

Actions: TLRD is currently trading at $19.46 so the 16 PUT we sold is OTM. Let the options expire on 12/15.

Sell PUT on NL Industries (NL)

STRATEGY: Look at the December 2017 12.5 PUT trade. For each 100 shares of NL stock you want to control, sell one Dec 2017 12.5 PUT option for a $1.10 debit per option or better. That’s potentially a 9.6% return on the PUT trade.

Actions: NL is currently trading at $13.30 so the 12.5 PUT we sold is OTM. Let the options expire on 12/15.

Sell Put on Mimedx Group (MDXG)

STRATEGY: Look at the December 2017 10 cash-secured put trade. For each 100 shares of MDXG stock you want to control, sell one Dec 2017 10 put option for a $0.80 debit per option or better. That’s potentially a 8.7% return on the cash-secured put trade.

 

Actions: MDXG is currently trading at $12.25 so the 10 PUT we sold is OTM. Let the options expire on 12/15.

How We Made 100% in a Month

In our income newsletter, we focus on creating monthly income by selling options to collect premium. we like to focus on high quality stocks with stable earnings and price movements. To boost our income, we will add a few trades with technical analysis confirmation when we see an opportunity in a high return trade. This has created several winners in the past month. We made 12% in a 40 day trade which equates to over 100% on an annual basis.

We published our blog post on CF Industries (CF) on July 10. This stock had formed a diamond bottom pattern (Bullish), providing a target stock price for the short-term above $30 per share. The trade was:

CF is currently trading at $27.89 per share. We want to sell a cash-secured put option on CF using the August 2017 30 Call. For each 100 shares of CF you want to control, sell one August 30 PUT option for a $3.00 credit or better. That’s potentially a 12.0% assigned return in 40 days.

Since the trade was shared with Monthly Income subscribers, CF is trading at $30.50 –rising above the $30 price target. The stock maintained its stock price even with the recent market pullback due to the Korean Crisis. These trades allow investors to compound their money to continue to grow their income.

We continue to produce monthly income through covered call and cash-secured PUT trades. We don’t find gems like this one every day, but they make for a successful investing and wealth creation. Using these strategies, investors can easily add $1000s of income each month. For some, they have built an income large enough to live life on their terms. When your monthly income exceeds your living expenses, you have achieved financial independence.

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