I’m reporting an options trade from this week for CAT. I’ve already bought and closed early three previous CAT puts this year for an options profit of ironically, $503. This will be the exact amount I’ll collect if this one expires.
The trade:
I Sold 1 CAT May 17 ’14 $82.5 Put @ 5.03
This trade could turn out a few ways:
1) I hold shares until expiration and shares are trading above $82.50. I will get to keep the $503 in options premiums.
2) I hold shares until expiration and shares are trading below $82.50. I will get assigned 100 shares of CAT at a cost of $77.47/share. This is a discount of almost 8% from where the stock is currently trading and a 12.5% discount to my cost basis of around $87. CAT recently issued a lower guidance and their stock dropped by $5/share. I used this temporary weakness to sell a put.
3) Shares of CAT go on a run and I decide to buy back the put early for a profit less than $503.
I currently have 8 open options positions and a total options profit of $4149 for 2013. My options page has been updated accordingly.
CAT has been a great stock to use an option strategy with. If the markets continue to remain a bit frothy and my cash position continues to build then I’m going to allocate some capital strictly towards serial option trades. Sell puts until the shares are assigned, then sell calls until they’re called away.
Hi PIP,
I agree and have done pretty well with CAT puts so far. Since I own CAT already and don’t mind buying more, this will be a win-win scenario. So far I’m generating some nice income with a relatively small options account.
Good luck with your trades.
AAI,
Options are one type of investing I don’t know terribly much about, but the idea of using puts or calls with blue chip stocks seems a good approach. I will look into this further. Thanks for the prompting.
-Bryan
Fast Weekly,
I wrote a primer on selling puts if you check out my options page. It’s worth looking into. I’d advise just selling a cash secure put against a stock you want to buy anyways. This is one of the safest bets.
Thanks for stopping by!
This is a really great trade AAI as either conclusion would be phenomenal. Currently I’m stepping away from options myself for a bit, but will certainly be utilizing them again in the future.
Hi Writing2Reality,
Thanks, I’ll be happy either way this turns out.
Take care!
In the next post, could you explain why you only issue one contract a time. Seams more rational to trade less with a higher underlying value. Or are your transaction costs minimal anyways?
/Aloha from sweden..
Hi Anonymous,
For CAT I normally sell 1 put because the price is so high. If this put is assigned then I will have to come up with $8250. The put cost me 10.99 in commission and this is very small to my potential $503 in premiums I get to keep. If you check out my yearly updates label you can find all my trades last year. One of my goals is to reduce commissions as a percentage of my profits. You will also notice on my options tab several multiple contract transactions. I will try to give more details on my next post.
Thanks for stopping by
Thanks for reporting this trade. I take it as inspiration. I actually took inspiration in SWY options trading you did some time ago and now I trade SWY options since then. Great premiums against great stock! I think CAT would be another addition to my option trading ammunition. Recently I got an idea of creating an option ladder, so now working on building it 🙂
Thanks for stopping by Martin. I’m glad to have brought SWY to your attention. It has done nicely this year. I’ll be keeping an eye on your options trades. CAT has good premiums but you are also risking a lot more capital to buy 100 shares.
Who is your current brokerage? Have you considered trading options in an account with Interactive Brokers, OptionsHouse, or eOption? Much less expensive options trades.
IB ~$0.70-$1.70/contract
OH $5 for up to 5, or $8.50+$0.15/contract
EO ~$3+$0.10/contract
Hi Anonymous,
I’m currently with E*Trade for options. The process isn’t simple for most brokerages letting you sell naked puts. Naked puts on margin is huge because I get to use a lot more leverage. I will look into those that you mentioned though. I’m paying a lot more than the prices you quoted.
Thanks for the info.