On 01/30/13 I sold a 09/21/13 $85 PM Put @ 4.23. If I waited until September and this put expired worthless I would have collected $423 in premiums.
This trade was originally posted here.
Since 01/30 PM has had a nice share price rise and I decided to buy-to-close this put at a price of 2.46 costing $246 plus $10.76 in commissions.
My profit before commissions was $177. I had a commission of $10.76 to sell the put and another $10.76 to buy the put back. This left my total profit after fees to 155.48. Fees ate up 12.2% of my profits. This is better than my average of last year that I posted in my yearly options update here (over 15%) so I can live with that.
Since I’m trading in a marginable account, I didn’t have to hold $8500 in the account, I only needed an average of $1000 to secure this put. This amount would fluctuate a little daily depending on the price of the put.
I earned 15.55% on my $1000 in only 22 days! This is an annualized rate of over 250%.
Another reason I wanted to close out was that I have a lot of open puts. In the event of a big market correction, I could have to come up with a lot of money to purchase shares. This is always a risk and the reason I’ve stuck to selling puts against companies I want to own anyways.
This brings my profit from options to $910 for the year. I have 14 open options positions, with $10k in cash in my options account and currently $3k in non-marginable purchase power.
I’ve updated this trade on my options tab.
That’s pretty nice. One thing that I would really like to know more about is how people use and set up margin accounts. How much money do they allocate, what kinds of trades are done in those accounts, etc.
Margin kind of frightens me, but in small doses I can see it being a very powerful thing.
Hi My FIJ,
Thanks! To answer your question I do trade in a marginable account. However, I don’t use the margin. I always keep enough cash ($10k) so that I am not borrowing against margin so I’m not paying additional interest. This account is approved for level-3 options trading which includes selling naked puts. If you aren’t approved for selling naked puts then you would have to keep the full amount of money needed if the position was assigned. I only have to keep approximately 20% of that on average.
The rule for maintenance requirements at E*Trade are:
– Equity and Narrow-Based Index Options:
Proceeds of the sale plus 20% of the underlying value less out of the money amount OR
proceeds of sale plus 10% of strike price, whichever is greater
That’s a great return. I like when a company I just sold a put on makes a big move up shortly thereafter since it let’s you buy back the put on the cheap and deploy that capital somewhere else.
Margin is another thing I need to learn more about. Although your brief explanation cleared up some of my questions. I didn’t know that you could just keep some cash in it to be able to avoid paying the margin interest. Good to know. Selling cash-secured puts is a pain so getting a chance to selectively use margin would be helpful.
It was a nice return in a short amount of time. I’m glad it’s helpful but I still have a lot to learn myself. Basically I have to keep enough money to close out the put I sold, not to purchase all of the shares that are assigned. Trading this way gives you so much more leverage. So far it’s working out well.
Thanks for stopping by!
Great work AAI! There is no shame in closing out a position to capture that sort of gain!
Obviously, as people have mentioned you can really compound your gains when working with a marginable account and can sell naked puts.
writing2reality,
Thanks! I was happy with the result as well.
The marginable account is working out very well. Even though I am not paying any interest on margin, I do get the benefit of additional leverage.
I have another put already that I sold that I’ll be mentioning soon.
Take care!