I originally sold a CAT put and an NSC put in July. Since then, shares are enough above the strike prices that I could make a nice profit. With the debt ceiling debate going on, I expect some volatility in the market and could sell another CAT or NSC put in the near future.
The original trades:
07/26/13 Sold 1 CAT Nov 16 ’13 $80 Put @ 3.37; posted here
07/24/13 Sold 1 NSC Mar 22 ’14 $75 Put @ 6.50; ;posted here
I decided to buy-to-close the CAT put @ 1.21. So I earned $337 – $121 = $216 in premiums in just two months.
I also decided to buy-to-close the NSC put @ 3.88. So I earned $650 – $388 = $262 in premiums in about the same amount of time..
I currently have 9 open options positions and have already met my options goals of $3000. I met and posted this options goal in July. My options income is still ahead of my dividend income although I expect to catch up and pass it this month.
I recently wrote up an introduction to options for anyone interested, posted here
My options page has been updated accordingly.
I just started learning about dividend. Now i need to learn about options.
Hi FFDividend,
When combined with dividends, selling puts can be a nice way to earn extra money. I’d recommend reading the intro to options I wrote first. I also noticed you are buying at a fast pace, keep it up and you’ll have a high dividend income in no time.
Take care!
I’m not familiar with NSC, but I do like your close on CAT. Perfect time to buy as it’s quite dependent on the economy.
Hi,
Long time reader of your blog.
I had a question on selling put options. I know i can buy a put option and it can either expire worthless (me keeping the premium), or i can get the stock assigned if the value falls below the strike price (i get 100 shares at the strike price – premium).
But am i correct in noting that i do not have access to any upside potential in the stock, say if it goes on a run – i cannot buy-to-close at that point ,right? You do mention doing that – so am a little confused.
thanks,
J
Sorry, read “Sell a put option” instead of buy at the start of my question above:)
Hi Anonymous,
If you sell a put option, you are short a put. You don’t actually own the stock. In fact you have sold the right to sell the stock. Since someone bought the right to sell the stock, if they enforce their option to sell then you are required to buy the stock. This is when stock gets assigned to you. This typically happens when the stock is trading below the strike price around the expiration date.
In the case that you sold a put and the stock goes up in price, this will erode the cost of that put. Meaning, you can buy back the put for a profit. Your profit isn’t the same % as the stock went up because you don’t actually own the stock. There is also a time factor involved with the put. The closer the option is to expiration the less the time value adds to the price of that option.
In the above trades, this is what in fact happened. The shares were trading higher than when I sold my put and some time value had eroded in the price of the put. Therefore, the puts were much cheaper so I bought them back making a profit.
If the stock does the opposite and goes down in price, below the strike then you will likely have to purchase the stock at the higher price, the strike price or you can buy back the put at a loss. This is exactly what happened with a TWGP put I just bought back. I’ll mention that soon.
It’s a little late here so I hope that made sense. Feel free to ask more questions and I also wrote a primer on selling puts that you can find on my options page.
Thanks for stopping by!