Yo Pit Crazies,
If you want to reset your portfolio for profits, take a gander at my Mid-Year Market Recharge at 8 p.m. tonight.
Yes, it’s my birthday – but this is too important for me to miss.
What is the secret to trading options for 30 years?
Now, once again stocks could not hold the rally of just last week.
Remember the spark for the rally was the hope that rates would not go to the moon because we were heading into a recession.
Now folks realize a recession with no fiscal stimulus or rate changes might be a rough road.
At least for yesterday the tone changed.
If you caught my 3 things to know about put selling yesterday (I’ll review them inside today, too), you’ll want to know how to manage them.
Let’s do it.
2 Easy Rules for Managing Short Puts
Yesterday, we covered selling puts.
Remember, selling puts assumes the investor will take the stock at some point.
They don’t have to and, as a matter of fact, it leads to Rule 1:
Don’t let the stock go below the short strike.
Which leads to Rule 2.
Don’t forget Rule 1.
This might seem counter intuitive considering ownership is assumed, but owning lower is always better.
If I can close a put and resell at a lower price that is always better since this is a game of income stream with ownership as the last resort.
If the stock gets to the short strike, close or pick a farther strike more OTM. Only roll once because if the stock has decided to keep going down, rethink the trade.
Closing in-the-money puts is not an income stream, it is just doing better than buying the stock at a higher price. Selling puts is just buying stock at lower prices and lower, still, is always better.
It is for this reason I sell put spreads instead of puts. That reduces the overall delta in the trade and sets up for some flexibility should the stock keep falling too much.
The Lesson: Trading options is still about keeping losses small with good potential gains so don’t get caught up in an idea that keeps losing.
The Rundown
OP Mentoring
I closed out a Cboe Volatility Index (Ticker: VIX) July 6 20 put for an 80% gain and am working on the SPY put close on June 30.
Nitro Trader
I closed a XOM July 22 85/92 call vertical spread for a 78% gain and will hold on to the SPY put fly hedge until July 1. I am in a credit position right now.
The Option Shopper
Licia took the morning rally yesterday to close two nice trades:
- 10 Ford Motor Corp (Ticker: F) Jul01 11.5 calls closed for a 70% gain
- 5 United States Oil Trust (Ticker :USO) Jul01 83.5 calls closed for a 49% gain
To Your Trading Success
AG