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This Is How I Trade Stock Options (Follow My Actual Trades)

Updated on August 18, 2018
Daniel Mollat profile image

Daniel is a retired business executive who now devotes most of his free time to trading stocks and stock options in the stock market.

A Site to Practice What You've Learned

For those of you who have now acquired sufficient knowledge and understanding about stock options, it is a ripe time to start practicing what you have learned. I’m sure many of you have desired to find a website that offered a service where you could watch how options trades are done on an ongoing basis. Where you could watch how an options trade is initiated, monitored, adjusted (if/when needed) and finally closed.

Well, you’ve found just the place for this!

Your Helping Hand to Options Trading

Source

Here I will post my actual options trades as I do them. But since there are dozens of options trading systems I will confine myself to trading those strategies that are the most common for beginners and those who have escalated their knowledge to slightly higher levels. The options trades I will be posting here are those involving the buying and selling of calls and puts, covered call selling, covered put selling, spread trading (mostly credit spreads) and the all-important process of rolling out options if and when these become necessary.

What Does the Service Cost?

It’s FREE.

I’m doing this to satisfy my passion to teach stock market investors how to use options as a complementary tool to enhance their investment returns. This serves as the final chapter in your learning process after you have gone through reading materials and attended webinars and seminars on options trading

Here you will see actual trades as they happen on a current basis. This will be like looking over my shoulder and watching me make my own options trades.

Option Trading Strategies I Use

Like I said, the option trading systems to be used in the actual trades are the following:

  • Buying calls and puts (mostly calls) as a speculative investment strategy in the stock market. This is a directional strategy for those who bet on a stock going in one direction, either up or down. See my article Simple Options Strategies For Beginners.
  • Covered call trading for those who already own stocks and wish to enhance returns on their stocks and increase cash dividend flow.
  • Covered call trading is also widely used by those who buy stocks for the sole purpose of selling calls against their stocks to generate regular income.

  • Covered puts or what is also called cash secured puts for those who have cash and are looking for better returns than what CDs can offer. It is also a great system to use as a home business to generate steady cash income.
  • Option spread trading of mostly credit spreads. This is similar to covered put selling and while it requires less capital it may be a little bit more complex but renders greater profitability.

  • Finally, I will include trades showing the all-important feature of using the roll-out process when an option position is threatened with exercise or assignment.

How Does This Service Work?

Whenever I make an option trade, whether it’s an opening trade, adjusting trade, rolling-out trade or closing trade, I will post the trade transaction here under the heading “Current Options Trades”. Immediately after posting my trade I will also post a comment at the bottom of the article where it says "Comments".

See below under “Current Options Trades” how transactions are reported.

How To Follow My Trades

To follow my trades you must be a member of HubPages.com. Go to the “COMMENTS’’ section below the article and check “Follow this article's comments”. By checking this section you will receive notice every time I post a new trade.

Current Options Trades

Listed below are my current options trades and the dates they were made with notes as to what and why the trade was made. Scroll down to view the most current date and trade transaction.

NOTE: Each trade transaction consists of enough number of contracts to yield anywhere from $400 - $500 in gains or losses after the trade position is closed. In this manner, it will be easier to compare results between trades. You may wish to use a lesser or higher quantity per trade depending on your available capital and risk tolerance.

Farther down is a summary table of the trades showing gains and losses.

May 4, 2018 – This is the first trade I initiate in this tutorial.

Sold to open (sto) IP June 50 put option @ $0.84

May 4, 2018 – This trade is made immediately after the IP trade.

Sold to open (sto) WBA June 60 put option @ 0.79

I made two trades today; International Paper (IP) and Walgreens Boots Alliance (WBA). Both are covered puts or what is also called cash-secured puts. These two trades resulted in cash intakes into my broker account.

May 7, 2018 – Bought to open (bto) FB June 180 call at 4.13. I placed a stop loss on this trade at 2.05.

I bought the Facebook (FB) June call as a speculative play. I’m betting this stock is ready to rise in a short time and if it does before the June expiration I could stand to make a bit of profit. Of course, it goes without saying, I lose my bet if I’m stopped out at 2.05.

May 10, 2018 - Sold to close (sbc) FB June 180 call at 8.35 for a profit of 102%! Not a bad return for an investment of only three days.

May 10, 2018 - Bought to open (bto) Alibaba (BABA) June 200 call at $5.25. At the same time, I placed a stop loss order (stc) at 2.70. This again is a speculative trade just like Facebook in the hope that it will tick up in the next few days. Hopefully well before the expiration date on June 15.

May 14/2018 – Today I did a debit spread trade. A covered call transaction on International Paper (IP) where I bought the stock and simultaneously sold a call option against the stock. But Instead of putting in two orders, buying the stock and selling the option, I placed a covered call order as one transaction for a net debit of $53.32. Below is a snapshot of the trade ticket placed with my broker:

Sample of an All-in-One Trade Ticket

When I placed the order IP was trading at around $54.09 and the June 55 call option (expiring Jun 15) was trading at $0.75-0.80.

The order was filled at the net debit price I specified of $53.32. This translated to my having bought the IP stock at 54.10 and sold the June 55 call at 0.78.

Although the order was place as one transaction for a net debit, the broker’s online statement shows the order being filled as two transactions; the stock bought at $54.10 and the June 55 call option as sold at $0.78.

May 15/2018 - Placed another covered put trade today. Sold to open the Walmart (WMT) June 82.5 put at 1.83 (expiring on June 15)

May 21 – Bought to open Home Depot (HD) July 195 call at $2.615

May 23 – Did two closing trades today when my stop losses were triggered. Sold to close the BABA June 200 call at $2.41, and sold to close the HD July 195 call at $1.50. Please see summary table below.

NOTE: My website was down for a few days while undergoing a fix to a problem. I apologize that I was not able to report the HD trade on the same day but it turned out to be a blessing in disguise for you because I had to close it today at a loss.

May 23, 2018 - Made a new opening trade today. Bought to open Nvidia Corporation (NVDA) June 250 call at $5.25

May 24, 2018 - Sold to open Bank of America June 30 put @ $0.51. This is a covered put expiring in June. If you have a margin account with your broker, which more often than not is the case, the cash you need to cover this transaction is about $550-600 per contract depending on your broker's internal margin policies. Some brokers are more liberal than others. My broker's requirement for this trade is $578 which gives me a return on investment of 8.4% in one month (.49 x 100 ÷ 578). The same manner of calculating returns applies to the sold puts of May 4th.

May 29, 2018 - Today, with the market taking a big drop, my BAC June 30 puts have gone ITM placing the position in danger of being assigned. If I allowed assignment I would have to buy the stock at $30 and my net cost after deducting the puts I sold would be $29.49. BACs current price now is $29.06 which is lower than my net cost. I decided to do a roll-out by buying to close the June 30 puts at $1.28 and selling to open new puts three months away in September. Here is the trade I did today:

Buy-to-close (BTC) June 30 put @ 1.28; sell-to-open (STO) Sept 29 put @ 1.48 for a net credit of $0.20

The two trades were placed as one transaction for a net credit of $0.20 or $200 for the 10 contracts in this position. Take note I've also reduced the strike price from $30 to $29. See trade summary below.

June 1, 2018

Today I sold to close (STC) the NVDA June 250 calls at $9.19 for a profit of 75%. See details in Trade Summary.

June 5, 2018

New opening trade today. Buy to open Facebook (FB) Jul 200 call (expiry 7/20/18) at any price below $3.50. I was filled at $3.05. See details in Summary Table.

June 6, 2018

My covered calls options on IP were exercised. I had to give up (sold) my IP shares at the strike price of $55 thus yielding a profit of $$0.90 per share or a total of $450 for the 500 shares I held. Adding the proceeds from the sale of the calls makes a total of $840. Additionally, a cash dividend of $0.475 per share was paid in May totaling $237.50. All told, this investment in IP stock and options has returned a total of $1,077.50. The return on investment is a nice 4% for a position that was held less than one month. If margin was used in the purchase of the shares (50%), as is usually the case, the ROI is 8%. See Trades Summary below.

June 7, 2018

New trade today. Sold to open ATT (T) Jul 32 put @ $0.49. This is a covered put position (cash secured put), one of my favorite options strategies. See Trades Summary.

June 11, 2018

My June 60 puts on Walgreens-Boots (WBA) are expiring this coming Friday. I am opening a new covered put position (cash secured puts) by selling 4 contracts of the July 62.5 puts at $1.25 and was filled at this price when the underlying WBA stock was at $64.06. See Trades Summary below.

June 14-16, 2018

June 14/18 - Three of my put options are expiring tomorrow for total gains of $1,527. I opened a new position today as follows:

Sold 4 contracts Schlumberger Ltd (SLB) July 67.5 put at $1.55. See transaction in Trades Summary below.

June 16, 2018 – Yesterday was expiration day for regular June stock options. I had three remaining options that all expired without value thus adding gains to my running total to-date.

Since starting this site on May 4, 2018, I’ve achieved total gains of $2,143.50. See Trades Summary for results.

June 20, 2018

Today I sold to close the Facebook (FB) July 200 calls at $6.05 for a nice profit of 100%. See Trades Summary.

Opened a new trade using covered put option strategy. STO 4 contracts of Consolidated Edison (ED) July 75 put @ 1.30.

June 25, 2018

Opened a new trade today on Verizon Communications. Sold to open 8 contracts of VZ Jul 48.5 put at $0.70. This is again a covered put strategy. VZ stock was at $49.59 when my order was filled.

June 28, 2018

My put options on WBA went into the red today and may run the risk of being assigned. The news that Amazon agreed to acquire PillPack, an online pharmacy, caused all pharmaceutical stocks to take a dive with CVS and Rite Aid following the trend. I feel this downtrend in the industry is a knee-jerk reaction to the Amazon-PillPack news and should bounce back in due time.

If assigned I would have to buy WBA at the strike price of $62.50. I don’t feel comfortable buying the stock at this price at the present time. I would like to wait and see what happens in the industry within the next few weeks. Instead of keeping my WBA options and risk assignment I am therefore closing it and opening a new position on CVS. I could have rolled out WBA to a farther expiration but it would mean going as far as October while CVS offers a shorter expiration of August. Here is my trade today:

BTC WBA Jul 62.50 put, 4 contracts @ 3.25

STO CVS Aug 67.50 put 4 contracts @ 4.25

July 3, 2018

Twitter took a dive today but over-all it shows good potential for a rebound. I opened a long position today as follows:

bto two contracts of TWTR Aug 45 call at $3.20

See trades summary below.

July 6, 2018

My July 75 puts on ED have now decreased to a low price of only $.05 affording me a profit of $500 for this position. With only $.05 value left on this option, there is no point in keeping it to expiration. I have therefore rolled it to another position in August.

btc 4 contracts ED July 75 puts at $.05

sto 5 contracts of ED Aug 77.50 put at $1.20

This order was placed as one roll-out transaction for a net credit of $1.15. See tades summry below.

July 13, 2018

I am closing AT&T as it is now in-the-money (ITM) and getting close to expiration. I could roll it out but there is too much uncertainty in this stock due to its merger problems with another company. I am therefore replacing it with Comcast Corp (CMCSA). This is the order I placed today and was filled at these prices:

BTC 10 contracts of T July 32 put at $0.55

STO 6 contracts of CMCSA Aug 35 put at $1.40

This trade yielded a net credit of $0.85 and buy selling fewer contracts it also reduced the margin requirement on the trade thus increasing my account’s options buying power. You may also do a spread trade similar to the one above even if not exactly at the same prices but be sure you get a net credit of around 75-85 cents on the transaction. See trades summary below.

July 17, 2018

Opened a new trade on JP Morgan Chase. Sold to open 4 contacts of the Aug 110 put at $1.80 giving me a cash intake of $720. This is another covered put where I used cash to secure the put position. Using margin, my cash investment on this 4 contracts is $8,587 which gives me a return of just over 8% when the options expire on August 17th. Here’s the trade as shown in the trades summary below:

STO 4 contracts JPM Aug 110 put @ $1.80

July 19, 2018

I opened a new long call position today buying the Facebook Aug 215 calls.

BTO 1 contract FB Aug 215 call at $4.65 with a stop loss of $2.70

Facebook is slightly down today in tandem with the general market but it has the potential to make a rapid rise within the next few weeks.

July 20, 2018

Today is expiration day for July monthly options. The SLB puts are ITM so it will surely be assigned at the end of the day while the VZ which also expires today is OTM and will not have value at the end of the trading today.

I don't want to be assigned and own the SLB stock so I'm therefore getting out of this danger by closing the put options for a nice profit of $320.

The VZ options will expire worthless for a profit of $560. My year-to-date profit, in two and a half months of trading, is now up to $3,263.50. See trades summary below.

NOTICE TO READERS: If you wish to submit a question, contact the author directly. If you wish to be notified of new trades quicker, contact the author to be included in his mailing list.

July 22, 2018

I placed a forward covered put order on the SPX index. This order was placed today to be filled tomorrow, Monday, July 23rd. I will leave the order open the entire day and hopefully get a fill at the credit I specified. If not, I may do some adjustment on the order or maybe just let it expire at the end of the day and try again with something else next day.

STO 9 contracts SPX Aug 2675 puts

BTO 9 contracts SPX Aug 2665 puts

This is a credit spread order for a net credit of $0.60

On this order my broker requires a margin deposit of $940 per contract. Depending on your broker you may be required the same, more, or less margin amount.

July 23, 2018

My credit spread order on SPX (placed yesterday, July 22) was filled at the credit price of $0.60 as I specified. See trades Summary.

NOTICE TO READERS: If you wish to be notified of new trades quicker, contact the author to be included in his mailing list. Or, If you wish to submit a question, contact the author.

July 24, 22018

I closed my position on Facebook (FB) Aug 215 call for a profit of 72%. See trades summary below.

I closed my position on Twitter (TWTR) Aug 45 call a $1.69. The price is slightly below my stop loss. Took a loss on this one. See trades.

July 27, 2018

Opened a new trade today on Walgreens Boots Alliance (WBA). This is a covered put position which required a margin of $1,340 per contract with my broker. Your broker may require more or less than this amount.

STO 6 contracts WBA Aug 67 put @ 1.06

August 1, 2018

Opened a new trade today. BTO 2 contracts FB Sept 175 call at $5.75. At the same time, I placed a stop loss order at $3.40 Good Till Cancelled.

August 6, 2018

Closed my position in FB for a 115% profit. My earlier email mentioned a gain of 133% but that was in error. The correct number is 115% gain. This was the Sept 175 call options that I bought at $5.75 on August 1st which I now sold for $12.40. On this FB call position, I made good use of the technique of using trailing stop loses as the stock went on a continuing rise.

When I placed this trade on August 1st, I simultaneously placed a GTC stop loss order to sell at $3.40. FB opened today on a very strong note and immediately went on a rapid rise. When my FB Sept 175 calls got up to $10 I raised my stop loss to $9.50. Had I been stopped out at this price I would have gained a 65% profit. The stock continued to rise much higher than I expected so I again raised my stop loss to $10.90 when the option was trading at $11.20-11.30. As the stock continued to rise some more I again raised my stop loss to $12.55 when the Sept calls were at around $12.65. At this point, I brought my stop loss close to the current market price since I now am looking at a gain of over 100% if stopped out at this price. Indeed, I was finally stopped out at $12.40 for a 115% profit.

My total profit to-date since the inception of this series of trades now stands at a nice $4,626.50 or some 9.3% of my initial capital of $50,000.

August 8, 2018

I placed a new trade today and was filled at the price specified. This is a covered put option on Schlumberger Ltd. (SLB).

STO 4 contracts SLB Sep 65 put at $1.23 for a total cash intake of $492.

My broker required a maintenance margin of $4,725 to cover this trade which means this position will yield a return of 10.4% when/if it expires OTM on September 21.

NOTICE TO READERS: If you wish to be notified of new trades quicker, contact the author to be included in his mailing list. Or, If you wish to submit a question, contact the author.

August 9, 2018

I placed an order for a credit spread on SPX for September expiration as follows:

STO 8 contracts SPX Sep 2780 puts

BTO 8 contracts SPX Sep 2775 puts

for a net credit of $0.60 or 0.55 if I can't get .60. I was filled at $0.60 when the underlying was at $2,858.74. The ROI on this trade is a potential 12%-14% depending on the number of contracts traded.

August 13, 2018

My six contracts of WBA Aug 67 puts were assigned last Friday at the close of trading at the strike price of $67. I was forced to buy 600 shares of WBA stock at $67. Today I got a margin call to cover the purchase as my cash position went into a negative balance. I, therefore, turned around and sold the 600 shares today at the early morning price of $66.49 for a net loss of $306. The original sale of the Aug 67 put options at $1.06 was more than enough to cover the loss and still generated a net profit of $330.

August 15, 2018

My SLB Sep 65 put options have gone ITM. I rolled these out to Oct 65 put for a net credit of $0.50.

BTC 4 contracts SLB Sep 65 put @ $3.30

STO 4 contracts SLB Oct 65 put @ $3.80

August 16, 2018

Today I closed my Bank of America (BAC) September 29 puts as they are now worth only $0.20. I replaced this with Pacific Gas & Electric (PCG) Sep 42.5 put for a net credit of $1.60.

BTC 10 contracts BAC Sep 29 put @ $0.20

STO 5 contracts PCG Sep 42.5 put @ $1.80

At only $0.20 there is no point in keeping the BAC position open all the way to expiration which is still five weeks away. I can use the margin funds holding this position (about $4,000) to cover another more profitable put option expiring in September, which is the PCG. The maintenance margin on the PCG trade is about $3,500 for a potential return of over 20% while keeping the BAC to expiration will return only about 5%.

August 17, 2018

Today is expiration day for my August put options. I have five puts that are expiring worthless at the end of the trading day totaling some $4,400 in profits. This boosts my gains to date to a total of $9,800. This is a 19.6% return on my original capital in a period of 4 months for an average return of about 4.9% per month. The closing of these puts releases margin funds that I can now use to cover new positions that I will be opening shortly. Watch for my next signals of new openings.

The numbers are not yet shown in the Trades Summary until tomorrow.

August 17, 2018

Opened a new trade today, increasing my position on Pacific Gas & Electric (PCG) but with a different strike price, expiring in September also.

STO 6 contracts PCG Sep 40 put @ $0.95

Trades Summary (scroll right to see more columns)

(1) Option Name/Expiration
(2) Action
(3) stock or option
(4) Entry Date
(5) Option or Stock Price
(6) Contracts or shares
(7) Opening Value
(8) x
(9) Action
(10) Exit Date
(11) Option or Stock Price
(12) Closing Value
(13) Gain/Loss
IP Jun 50 put (International Paper)
sto
o
5/4/2018
0.84
6
504.00
x
btc
6/15/2018
0.00
0
504.00
WBA Jun 60 put (Wallgrn Boots Alince)
sto
o
5/4/2018
0.79
6
474.00
x
btc
6/15/2018
0.00
0
474.00
FB Jun 180 call (Facebook)
bto
o
5/7/2018
4.13
1
413.00
x
stc
5/10/2018
8.35
835
422.00
BABA Jun 200 call
bto
o
5/10/2018
5.25
1
525.00
x
stc
5/23/2018
2.41
241
-284.00
IP (International Paper) covered call
bto
s
5/14/2018
54.10
500
27,050.00
x
stc
6/5/2018
55.00
27,500
450.00
IP Jun 55 call (Int'l Paper)
sto
o
5/14/2018
0.78
5
390.00
x
btc
6/5/2018
0.00
0
390.00
IP dividend paid on 5/25/18
 
 
5/25/2018
0.475
500
237.50
 
 
5/25/2018
0.00
0
237.50
WMT Jun 82.5 put
sto
o
5/15/2018
1.83
3
549.00
x
btc
6/15/2018
0.00
0
549.00
HD Jul 195 call
bto
o
5/21/2018
2.615
2
523.00
x
stc
5/23/2018
1.50
300
-223.00
NVDA Jun 250 call
bto
o
5/23/2018
5.25
1
525.00
x
stc
6/1/2018
9.19
919
394.00
BAC Jun 30 put
sto
o
5/24/2018
0.51
10
510.00
x
btc
5/29/2018
1.28
-1,280
-770.00
BAC Sept 29 put
sto
o
5/29/2018
1.48
10
1,480.00
x
btc
8/16/2018
0.20
-200
1,280.00
FB Jul 200 call
bto
o
6/5/2018
3.05
2
610.00
x
stc
6/20/2018
6.05
1,210
600.00
T Jul 32 put
sto
o
6/7/2018
0.49
10
490.00
x
btc
7/13/2018
0.55
-550
-60.00
WBA July 62.5 put (Walgrn-Boots)
sto
o
6/11/2018
1.25
4
500.00
x
btc
6/28/2018
3.25
-1,300
-800.00
SLB Jul 67.50 put
sto
o
6/14/2018
1.55
4
620.00
x
btc
7/20/2018
0.75
-300
320.00
ED Jul 75 put
sto
o
6/20/2018
1.30
4
520.00
x
btc
7/6/2018
0.05
-20
500.00
VZ Jul 48.50 put
sto
o
6/25/2018
0.70
8
560.00
x
btc
7/20/2018
0.00
0
560.00
CVS Aug 67.50 put EXPIRED
sto
o
6/28/2018
4.25
4
1,700.00
x
btc
EXPIRED 7/17/2018
0.00
0
1,700.00
TWTR Aug 45 call
bto
o
7/3/2018
3.20
2
640.00
x
stc
7/24/2018
1.69
338
-302.00
ED Aug 77.50 put EXPIRED
sto
o
7/6/2018
1.20
5
600.00
x
btc
EXPIRED 7/17/2018
0.00
0
600.00
CMCSA Aug 35 put EXPIRED
sto
o
7/13/2018
1.40
6
840.00
x
btc
EXPIRED 7/17/2018
0.00
0
840.00
JPM Aug 110 put EXPIRED
sto
o
7/17/2018
1.80
4
720.00
x
btc
EXPIRED 7/17/2018
0.00
0
720.00
FB Aug 215 call
bto
o
7/19/2018
4.65
1
465.00
x
stc
7/24/2018
8.00
800
335.00
SPX Aug 2675/2665 credit sprd EXPIRED
sto
o
7/23/2018
0.60
9
540.00
x
btc
EXPIRED 7/17/2018
0.00
0
540.00
WBA Aug 67 put
sto
o
7/27/2018
1.06
6
636.00
x
btc
EXPIRED 8/10/2018
0.00
0
636.00
FB Sep 175 call
bto
o
8/1/2018
5.75
2
1,150.00
x
stc
8/6/2018
12.40
2,480
1,330.00
SLB Sep 65 put
sto
o
8/8/2018
1.23
4
492.00
x
btc
8/15/2018
3.30
-1,320
-828.00
SPX Sep 2780/2775 put credit sprd
sto
o
8/9/2018
0.60
8
480.00
x
 
open
 
 
0.00
WBA stock
bto
s
8/13/2018
67.00
6
40,200.00
x
stc
8/13/2018
66.49
39,894
-306.00
SLB Oct 65 put
sto
o
8/8/2018
3.80
4
1,520.00
x
 
open
 
 
0.00
PCG Sep 42.5 put
sto
o
8/16/2018
1.80
5
900.00
x
 
open
 
 
0.00
PCG Sep 40 put
sto
o
8/17/2018
0.95
6
570.00
x
 
open
 
 
0.00
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain/Loss to date (4 mos): $9,808.50
 
 
 
 
 
 
 
 
 
 
 
9,808.50

NOTES on Trades Summary Table

The table is divided into two sections: The left side of the "x" column represents opening trades while the right side represents closing trades and the net Gain or Loss after the trades are closed.

No commissions or brokers’ fees are included since this is a variable depending on which stock/ options broker you work with and the number of contracts or shares you trade.

Column 1: “Option Name/Expiration” shows the symbol of the underlying stock, expiration month, strike price, type of option (call or put) and company name.

Column 2: the action taken: sto – sell to open; bto – buy to open; stc – sell to close; btc – buy to close

Column 3: whether the security is a “s” (stock) or “o” (option)

Column 4: date on which the trade was initiated

Column 5: current price of the stock or option premium on entry date

Column 6: number of option contracts (if trade is option) or number of shares (if trade is stock)

Column 7: total value of the opening trade

Column 8: table divider between opening and closing transactions

Column12: closing value of the trade transaction

Column 13: The net effect (Gain or Loss) of the transaction after the position is closed

Ready, Set, Go!

You are now ready to get on and start your practice trading adventure.



QUESTIONS and ANSWERS

On closing the ED puts on July 6:

Question: What is the underlying reason for closing the ED July 5 puts? Wouldn't it be better to let it expire and get a bigger profit and not pay commission as it expires, then place the STO Aug as a single entry?

Answer: As I said in my notes, there is only $0.05 value left in the option which still has two weeks to run to maturity. This means the most I can get out of this option if I keep it to maturity, where it expires to zero, is $0.05, for a total of only $20 for my 4 contracts. Why not just close it and use the margin holding the position to open another trade that can give me more money?

Remember each covered put position requires to be covered by a margin deposit so by keeping open the ED July puts to maturity it will return only $20 in the next two weeks for the margin that covers it (approx $5,900). This roll-out procedure gives the investor the most return for the margin money invested - $0.46 or a total of $276 for the next two weeks compared to only $20 if I keep open the ED puts.

Lastly, by doing the roll-out as one combined trade, the commission is less than opening a new single trade when the ED July options expire.

On SLB trade of July 20:

Question: I am following your trades, but I am still a greenhorn on selling puts. On 6/14 you STO SLB July 67.50 put. The stock price at that time was running around $68. On June 20 the stock dropped to 64.51. This is down 3 strikes from your put strike. I do not know what the option price was but your put was surely ITM. My first question is: since the stock went down to the danger zone, why did you not BTC at that time and rolled out since the stock could even go lower? The second question is: since the stock is already 2 strikes down the buyer is already a winner. Why didn't he assign it.?

Answer: To be honest with you I didn't notice the drop to 64.51 on June 20. Somehow my price alert system did not trigger and so I missed the price drop. It actually closed that day at 65.55. The following days it went up and then on July 2 dropped again to $65.21. All this time I was unaware of this dropping trend. Upon further investigation, I found that I had completely forgotten to set a price alert on the SLB stock and that's how I missed the price drop. My bad.

At any rate, even if I was assigned when the price dropped to 65.21 I would have bought the stock at a net price of $65.95 after deducting the money I got from the sale of puts. If this actually happened then I would own the stock and I can then sell covered calls against the stock I now own.

Why I was not assigned when the price dropped to 64.51 could be for many reasons. But really, if my usual price alert was triggered I would have rolled the option to a farther expiration and lower strike price, or rolled it into another stock.

NOTICE TO READERS: If you wish to submit a question contact the author directly. If you wish to be notified of new trades quicker contact the author to be included in his mailing list.

On your SLB July 67.5 put when it was closed on July 20, 2018:

Question: On Jun 14 you STO SLB Jul 67.5 put @1.55 but when it was ITM on July 20 you BTC the option @.75. Isn't the premium of your BTC supposed to be higher when the trade goes in the money?

I did a STO on SLB 65 put when the stock was 66.09 for a premium of $1.04. Now the stock is down to 65.15 but the premium here is 1.49 so if I BTC it will be at a loss which contradicts you strategy mentioned above. I still don't know why was your premium on BTC lower than your STO when the option is now in-the-money?

Answer: To answer your firs question, when I opened the position on June 14th the option premium carried only extrinsic value (time value) and with no intrinsic value (also called real value, difference between stock price and strike price). The premium of $1.55 was entirely time value. As you know this value erodes every day as the option moves on to its expiration date. On July 20, a month later, which was also expiration day for the option, there was just a mere $0.03 of time value left in the option. On this date, the option being ITM carried a real value (intrinsic value) of $0.72. This is the reason why even though the put option went ITM, premium was less than the original price because it only contained intrinsic value with nearly zero time value. Time value disappears at the end of expiration day.

To answer your second question, what expiration month did you use for your SLB 65 put? I presume it was August (3rd Friday in Aug). At the time you opened the trade the option had only time value of $1.04 with zero intrinsic value. Even though time value deteriorates for each passing day, it may gain time value when the strike price nears stock price and the expiration is still far away – in this case 4 weeks away. This is what happened in your case. When the stock price went down to $65.15, not only did the time value appreciate to $1.34 but it now carried an additional $0.15 intrinsic value for a total of $1.49. Always remember that time value counts a lot when expiration is still far and intrinsic value increases dollar for dollar as the option goes deeper ITM.

For your last question, yes, if you will just close it and not roll it you will indeed take a loss of $0.45. That is why if you want to avoid taking a loss you roll it to a farther expiration date and maybe a new OTM strike for a premium of at least $1.49 to cover the BTC price that you are now facing. If you don't want to go out too far in the future, you may want to find another stock with August expiration that will give you a premium of 1.49 or better. But keep in mind margin requirements. Find a stock option that will require a margin that is near what you are putting up now for the SLB 65-put otherwise the margin may be so much as to strain your working capital.

On the SLB roll-out trade of August 15, 2018

Question: You BTC the SLB Sep 65 put and rolled-out because it went ITM when the underlying stock dropped down to the price of $62.80. You replaced it and STO the SLB October 65 put which is also ITM. Why did you roll out to another option strike that is also ITM? Why would the option holder or holders want to exercise the option when it is still far away from expiration? Please explain.

Answer: The September 65 puts now stand a good probability of being exercised because the option holder or holders who bought the puts at $1.23 would now be in profit if they exercised their options. With exercise, they would sell their stock to me at $65 less the 1.23 they paid for the puts give them a net selling price of $63.77. Since the underlying stock is now at $62.80 they can just turn around and buy the stock again at the new price of 62.80. They may be ‘buy and hold’ stock investors who are just taking advantage of lowering the cost for their stock holdings.

Plain speculators who trade options for a living who bought the September 65 puts with the intention of profiting from a pricing downtrend would not exercise the options but would instead just sell the puts outright at the current price of $3.30 and pocket a profit of $2.07 (3.30 less 1.23).

If I intended to own the stock I would not have rolled out the position at all. I would have waited to see if it would be assigned and I would then be compelled to buy the stock at $65. This effectively gives me a net cost of $63.77 after deducting the premium of $1.23 from the sale of the September 65 put. But I have no intention of owning the stock at this point.

There is no way for me to know who are speculators and who are long-term investors.

Since I’m not interested at this point in owning the stock, I have to get out of the potential assignment by doing a roll out to a farther expiration date and/or different strike price. In order not to extend the expiration date too far out, I decided to maintain the same ITM strike of 65 expiring in October (3rd Friday) yet giving me enough premium to recover the loss on the closing trade I just did. The October 65 put option carried a premium of $3.80 thereby offsetting the $3.30 price I paid to buy back the September 65 put. This effectively gave me a net credit of $0.50. The October 65 put holders would not exercise the option since their cost is $3.80. SLB stock would have to drop below $61.20 before the October puts become attractive for exercise. This would also be my new effective purchase cost if it were assigned. Depending on SLB’s future outlook I may even be tempted to take assignment and buy the stock at a net cost of $61.20 if it came to that.

NOTE:

Any and all information pertaining to trading stocks and options including examples using actual securities and price data are strictly for illustrative and educational purposes only and should not be construed as complete, precise or current. The writer is not a stockbroker or financial advisor and as such does not endorse, recommend or solicit to buy or sell securities. Consult the appropriate professional advisor for more complete and current information.



Questions & Answers

  • Why are your stop loss prices not shown in the Trades Summary Table?

    Stop loss prices are my recommended prices to exit the trade when the underlying stock is going in the opposite direction desired by the investor. It is up to the trader/investor if he/she wants to follow the suggested exit prices. In many cases, a stop loss price is reached and passed only to recover a few days later and go in a positive direction all the way to a great profitable exit price. In the same manner, my recommended entry price is not cast in stone. In some cases, you may want to wait before getting into the trade in the hope that you could enter the transaction at better than my recommended price. The prices that appear in the Summary Trade Table are actual entry and exit prices (closing prices) at which my orders were filled.

  • Your strategies are too advanced for many of us newbies. Could you limit the trades using only very simple strategies?

    Yes, some of the trades may be too complex for beginners. But please understand, the general investing public views my website, primarily I believe by options traders and stock investors who wish to learn more about options trading at different levels of learning. The options trading skill levels of viewers may vary widely from those who are very fresh out of school to those who are already in advanced stages of learning, to those who already know how to trade and just need some hands-on experience.

    That's the reason why I'm using various trading strategies, from the very simple buying of calls/puts (mostly calls) for the very basic beginners to the more advanced systems of selling covered calls and covered puts. I will also be including credit spread trades for those who want to start learning or practicing this strategy. Of course, there will also be many trades on roll-outs as they become necessary in support of current actual trades.

    I suggest that beginners confine themselves to following those trades that they understand well and slowly move on to the more complex trades as they increase their trading skill levels. Actual practice is the best teacher in the field of options trading. Unless you do real trading, it will be difficult to master the skill of options trading.

    I will always trade different strategies for the benefit of followers at different learning levels.

  • Can I close my trade stock positions before expiry if they are losing money or making money?

    You can close your options positions anytime you wish, whether you are losing or making money. If you are losing money on a covered put position it may be better to roll-out your position to a farther expiration date, or roll-out to a different stock option but gaining a credit in the process. When rolling out, always try to gain credit whether rolling to a farther date or getting into a new stock option.

  • There are various expirations dates for options on the stocks you choose. Which expirations do you normally select to trade on?

    When I don’t mention a specific expiration date for a stock or ETF option, it means it is the regular monthly option which expires on the third Friday of every month. Index options may have a different expiration date and this will be mentioned in my trade if I get into an index option.

© 2018 Daniel Mollat

New trade notice

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    • profile image

      Teresa 

      32 hours ago

      Just wanted to thank you for this blog and sharing your trades. Very useful and I have made money a few times by trading along with you. Thanks!

    • Daniel Mollat profile imageAUTHOR

      Daniel Mollat 

      33 hours ago from Nevada

      August 17, 2018

      Made a new trade today. See details at:

      https://hubpages.com/money/-trade-stock-options#mo...

    • Daniel Mollat profile imageAUTHOR

      Daniel Mollat 

      35 hours ago from Nevada

      August 17, 2018

      Today is expiration day for my August put options. I have five puts that are expiring worthless at the end of the trading day totaling some $4,400 in profits. See detailed notes at:

      https://hubpages.com/money/-trade-stock-options#mo...

    • Daniel Mollat profile imageAUTHOR

      Daniel Mollat 

      2 days ago from Nevada

      There’s a question and answer which you might find interesting. It is about the recent roll-out of my SLB trade of August 15th.

      https://hubpages.com/money/-trade-stock-options#mo...

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