Today I closed the following transaction for a profit:
09/04/12 STO 2 CAT Sep22 2012 77.5 Puts @.57 102.46
09/14/12 BTC 2 CAT Sep 22 2012 77.5 Puts @.01 -2.04
I was able to close this trade for a penny and without commissions so I did. When I originally sold the puts CAT was down to $82.20. Ten days later it was over $93/share. Due to the steady rise in the stock, margin maintenance averaged down to ~$1700. As such, we earned $100.42 in 10 days on $1700 in margin maintenance. This equates to a 5.9% return on maintenance or 215% annual.
That's another thing I love about put selling. If the price of the stock skyrockets, you can close out your trade early. Each day the stock rises the amount of margin maintenance needed decreases thereby freeing capital for other trades. I remember when I exclusively traded covered calls that it would not be beneficial if the stock rose too much or too quickly. Buying back the calls when volatility was in an uptrend was not very profitable.
Showing posts with label CAT naked puts. Show all posts
Showing posts with label CAT naked puts. Show all posts
Friday, September 14, 2012
Tuesday, September 4, 2012
New Trade: Caterpillar (CAT) Naked Puts
Today with the Dow down 90 points and CAT down to $82.20 I entered into the following transaction:
09/04/12 STO 2 CAT Sep22 2012 77.5 Puts @.57 102.46
Caterpillar is a blue chip, rising dividend stock with high volume and high volatility. CAT has been raising it's dividend for 19 years and the last rise was very healthy which I take as a vote of confidence from management. I've been watching Caterpillar for signs of weakness to enter a position and today provided that. There appears to be strong support for CAT at $80/share.
This is an 18 day trade with only 13 days of active trading included in those 18 days. If these puts expire worthless we will earn 5.38% on $1905 of margin maintenance or 109% annual. If put to us our yield on cost will be 2.7% which is high for CAT. If the stock drops we should have ample opportunity to roll down and/or out for a net credit. As such, we have an exit strategy in place.
09/04/12 STO 2 CAT Sep22 2012 77.5 Puts @.57 102.46
Caterpillar is a blue chip, rising dividend stock with high volume and high volatility. CAT has been raising it's dividend for 19 years and the last rise was very healthy which I take as a vote of confidence from management. I've been watching Caterpillar for signs of weakness to enter a position and today provided that. There appears to be strong support for CAT at $80/share.
This is an 18 day trade with only 13 days of active trading included in those 18 days. If these puts expire worthless we will earn 5.38% on $1905 of margin maintenance or 109% annual. If put to us our yield on cost will be 2.7% which is high for CAT. If the stock drops we should have ample opportunity to roll down and/or out for a net credit. As such, we have an exit strategy in place.
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