I’ve decided to keep track of my options trading again and I’ve started this month with a bang. Yes, it’s a catchy title but please let me explain.
Below are the actual trades:
| Date | Action | Ticker | Expiration | Strike | Call/Put | Qty | Price | Amount | Fees | Net | Days to Exp | Current Price | 52wk range |
| 7/6/2017 | Sell | MO | 9/21/2018 | 75 | Call | 1 | $5.15 | $514.96 | $5.45 | $509.51 | 558 | $74.25 | 60.82 – 77.79 |
| 7/6/2017 | Sell | MO | 1/18/2019 | 90 | Put | 1 | $19.00 | $1,899.93 | $5.45 | $1,894.48 | 439 | $74.25 | 60.82 – 77.79 |
| 7/6/2017 | Sell | BDX | 1/19/2018 | 210 | Put | 1 | $18.00 | $1,799.93 | $5.45 | $1,794.48 | 194 | $197.79 | 161.29 – 197.85 |
| 7/6/2017 | Sell | MDT | 6/15/2018 | 97.5 | Put | 1 | $11.25 | $1,124.95 | $5.45 | $1,119.50 | 341 | $87.96 | 69.35 – 89.72 |
| 7/6/2017 | Sell | JNJ | 6/15/2018 | 150 | Put | 1 | $19.50 | $1,949.93 | $5.45 | $1,944.48 | 341 | $132.54 | 109.32 – 137.00 |
The total of these trades gave me a little over $7262 Net. I’m approved for “naked” options trading meaning I can sell puts on companies I don’t own and without having the cash to purchase said security. Now, I do have a covered call on MO since I own 100 shares and sold 1 call.
My put selling was 3 giant medical companies plus MO. These companies are not going anywhere and I don’t mind purchasing shares if needed. I’m basically asking mr. market to give me some assistance in sending their share prices higher. For instance, if shares of Johnson and Johnson are over the strike of 150 on 06/15/18 then the put will expire worthless and I’ll keep the entire $1,949.93 as profit. Let’s say JNJ is trading at 135 around expiration, about 15 off where I want it. That means the put is worth 15 x 100 or $1500 to buy back if I choose not to execute it.
Am I crazy you might ask? No, not entirely lol. So what happens in the case that one of these companies is lower near expiration? Well, I have a few options.
I can do nothing and I’ll be required to purchase 100 shares of said security at the strike price. It’s sort of like I’m buying the company right now at a discount. For instance, MO is at $74.25/share. I have to pay $90/share but I received a $19 premium or $1900 which is the same as if I purchased the company for $71/share. Now I would miss a couple of dividends but I’m still better off with the put.
I can decide to purchase back the put for more money at a loss of approximately ($71/share – current share value) x 100.
Third option is to “roll” the put forward. What this means is that I simultaneously purchase the put back and sell another longer dated put so that I haven’t lost any money. I’ll show you guys how this works around expiration if needed.
Well, here you are. My crazy put selling frenzy! I need medical companies to stay in favor and I’ll be a happy camper.
I’ve personally not gotten involved with puts or calls because I don’t fully understand them.
In your JNJ example your put of 100 shares gave you $1949.93 in cash in your account? Or do you get it on 6/15/2018 only if the price is over $150 per share? But if it is at $135 using your example, you buy the shares for $1500, but if you got $1949 to begin with you still have made $449 and got a 100 shares?
Like I said I am confused. If that is how it works, then you would never lose money…I’m missing something.
Ed69,
No, I received that money instantly to do what I want with. I already received the $1949.93. If JNJ is trading at $135 then I could allow the put to get assigned, which means I will have to purchase 100 shares at the strike price which is 150. So It would cost me $15,000 but I received already $1949.93 which means it really cost me $13,050.07 or $130.5/share which is still better than the $135. I hope that helps.
Wow! Thanks for sharing this impressive income strategy. I have a few positions I’m considering selling covered calls on, but this naked options writing looks to be even more effective. Thanks as well for explaining how you’re managing the downside potential.
Jay recently posted…Free Trend Following Trade Ideas for July 2017 (Part 2)
Hi Jay,
naked put options can be risky but if I’m only writing them against companies I want to buy anyways then it’s not a big deal. I just have to make sure to have the money in my account around expiration if I want them to get executed. Stay tuned, I’ll keep you updated. Good luck with your options trading!
Hello!
Just out of curiosity, if MO rolls back into PM what would happen to the call option? Would you have to roll it, or would you just pocket your profit?
Chris,
The odds of that happening are close to zero. If it did, I’m thinking it would automatically change into a PM call adjusted for the new merged pricing. I’m really not sure what happens to options in a merger though.
Thanks for stopping by!
Thank you and thank you for sharing your investing journey. Your portfolio is envious!
I don’t understand (rookie in options):
those expiration dates are in 2018-19,–quite long. how did you already got the incomes?
do that mean you choose to execute before expiration date—e.g. you actually purchase stocks at strike price which is much higher than current price but you’re compensated by the premium you collected?
thanks
Linda,
That’s correct. Selling a put is selling the right to sell at the strike price which is essentially agreeing to purchase at the said strike. Those strikes are higher prices and you are compensated immediately for that. It’s a bullish play on the security.
Dear AAI,
Have you ever written a post on “puts and calls” (or whatever they’re called)? Like a previous commentor, I’m lost but would like to know more. I’m in Canada in case that matters.
Please feel free to post some links to existing web sites or books if you think that they did a good job of explaining them.
Sarah.
Sarah De Diego recently posted…10 Things to Consider When Buying a Car Booster for Your Child
I wrote this article on options a while back. I hope it’s helpful. This is from my “Getting Started” tab at the top:
https://www.allaboutinterest.com/2013/08/introduction-to-options-trading-part-1-puts.html
Very nice post. I am very happy with this data and follow all steps when i’m going to investment.
Roy Miller recently posted…How I generated over $7,000 in one day of options trading
That is fantastic. If one can have such like twice in a month, that will be cool
Do you recommend an option chain for RDS.B?
Chris,
I own RDS.B but haven’t used them for options trading. They have had a nice run though and are back above my basis. Selling puts against companies you want to own anyways can be a great way to earn extra income or pick up shares cheaper than market value.
Thanks for stopping by!
Until these options don’t expire worthless in MANY MANY days this info is worthless and the trades can be big losers. Very misleading….
Hi Cannon,
I don’t consider myself a trader first off. I’m a dividend growth investor with a buy and hold mentality. Selling puts on companies I want to own or already own is a win/win for me. You might have different objectives. However, my blog is about keeping up with MY trades. I don’t advocate anyone copying my moves. I’m merely here to be helpful. I’m posting an update soon, so far so good.
Cheers!