Comments on: Selling Cash-Secured Puts to Lower Cost basis https://www.thebluecollarinvestor.com/selling-cash-secured-puts-to-lower-cost-basis/ Learn how to invest by selling stock options. Thu, 16 May 2019 12:28:01 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/selling-cash-secured-puts-to-lower-cost-basis/#comment-209044 Thu, 16 May 2019 12:28:01 +0000 https://www.thebluecollarinvestor.com/?p=17820#comment-209044 In reply to Kossila.

Kossila,

The only aspect that I would look to change regarding this trade is your post-trade reaction. You realized a 3.4%, 19-day return. Annualize that!

You managed this trade perfectly. No exit strategy action was indicated. If you wanted to retain the stock in your next-month portfolio, rolling the option when (and if) the time value approached zero may have been considered.

Now, why early exercise? My guess is that an option holder wanted to take control of the shares and the time value component was approaching zero. If there was some time value left on the premium, the option holder would have been better off selling the option and then buying the stock at market.

Alan

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By: Alan Ellman https://www.thebluecollarinvestor.com/selling-cash-secured-puts-to-lower-cost-basis/#comment-209042 Thu, 16 May 2019 12:06:16 +0000 https://www.thebluecollarinvestor.com/?p=17820#comment-209042 In reply to John.

John,

The 20%/10% guidelines state that we buy back to short call when the option price drops TO (not “by”) 20% or 10% of the original premium we generated. This allows us to retain 80% to 90% of the original premium generated.

In the case of MSFT, we sold the call for $1.42 so we buy-to-close in the first half if premium value drops to $0.28 or less (20%) and $0.14 or less in the latter part of the contract (10%).

Keep in mind that these are guidelines so we have some flexibility if the premium is “in-the-ballpark” for these percentiles.

Alan

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By: Kossila https://www.thebluecollarinvestor.com/selling-cash-secured-puts-to-lower-cost-basis/#comment-209043 Thu, 16 May 2019 09:55:21 +0000 https://www.thebluecollarinvestor.com/?p=17820#comment-209043 Hi Alan,

I have a quick question:

I have 100 Shares of BNO (ETF) on my Daughter account that i bought on 3/29/2019 for $19.20 per share. I also sold BNO May 17 2019 19.00 Call the same day for $0.85 ( no fees since free trades for 90 days). potential of 3.4 % profit.

Yesterday evening 5/14/2019 I got notice of assignment and i am no longer have the shares. I just wanted to understand why it happen. I am also assuming no dividend involved.

My plan was to let the option expired in few days then lose the shares but is there any ideas on how i could managed the situation much better and make more money ( Roll up…etc)

I wanted to understand so i can manage the situation better especially with more shares and expensive stocks/ETFs.

Thanks in advance for all your help!

Kossila

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By: John https://www.thebluecollarinvestor.com/selling-cash-secured-puts-to-lower-cost-basis/#comment-209041 Thu, 16 May 2019 08:07:52 +0000 https://www.thebluecollarinvestor.com/?p=17820#comment-209041 Morning Alan,

On your “BCI PORTFOLIO OVERWRITING CALCULATOR” on page 8 figure 6 of the instructions.
In the MSFT column where you have the short call strike premium at 1.42. At the bottom where you have the buy back at 20%, you have .28. So your calculations; 1.42x.20=.28. This is a little confusing to me as it is not the correct buy back amount, it may be the amount that it drops by.

The correct should be 1.42x.80=1.14. So when the premium drops to 1.14 that is the buy back point.

The same with the 10% buy back amount
1.42×90=1.28, this is the buy back premium amount Am I correct?

Thanks

Love your articles

John

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By: Alan Ellman https://www.thebluecollarinvestor.com/selling-cash-secured-puts-to-lower-cost-basis/#comment-209021 Thu, 16 May 2019 01:21:26 +0000 https://www.thebluecollarinvestor.com/?p=17820#comment-209021 Premium members:

This week’s 8-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options as well as the implied volatility of all eligible candidates. For your convenience, here is the link to login to the premium site:

http://www.thebluecollarinvestor.com/member/login.php

NOT A PREMIUM MEMBER? Check out this link:

http://www.thebluecollarinvestor.com/membership.shtml

Alan and the BCI team

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By: Hoyt T https://www.thebluecollarinvestor.com/selling-cash-secured-puts-to-lower-cost-basis/#comment-208943 Wed, 15 May 2019 11:20:33 +0000 https://www.thebluecollarinvestor.com/?p=17820#comment-208943 In reply to Hoyt T.

Terry,

Exactly.

Art is an honorable man. He doesn’t let people put words in his mouth nor does he feed off their emotions.

He also, as floor manager for UBS, he knows the the order book on what is to be bought or sold at the close. That number is a very important indicator of where the market will be the next day after the humans have adjusted, if necessary, the mistakes of the machines overnight and early morning. I used to use it to buy either puts or calls at the close.

Good luck today.

Hoyt

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By: Hoyt T https://www.thebluecollarinvestor.com/selling-cash-secured-puts-to-lower-cost-basis/#comment-208941 Wed, 15 May 2019 11:13:12 +0000 https://www.thebluecollarinvestor.com/?p=17820#comment-208941 In reply to Hoyt T.

Thanks Barry.

As Art tells the story, after all the bad news over the weekend, Art was having coffee and kept seeing aides coming and going and giving Phelan small scraps of paper and he, Art, could see a pall over the table were Phelan was seated.

We probably will not see Cashin’s like again.

Thanks for all you do.

Hoyt

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