A week ago I Sold to Open HOG #2 (I am hoping to one day be up to HOG #2,270 without ever actually being put the stock), and today I bought to close the same contract.  With that possible outstanding risk of being put $4,500 worth of Harley Davidson stock being removed I immediately sold another put.

Buying to Close HOG #2

On 7/28/2016 I sold a put with a strike price of $45 for a premium of .27 ($27.00) and I closed that same position out one week later at .13 ($13.00).  This leaves me with a profit of $18.00, a P/L % of .31% and an annualized return of 16.22%. I have to keep reminding myself that despite the actual dollars being small, it is the percentage that matters (and it doesn’t hurt that I have a TON of free trades still left).

That trade put $4,500 of my margin at risk so with that cleared up I immediately started to look for another opportunity to sell another options contract.

Selling to Open Met

Let’s go through Methodology

I Will Only Buy Naked Puts on Those Stocks that Pass my Stock Screen

  • The company needs to have a P/E less than 20; and
  • The company needs to have at least a 2.5%  yield; and
  • The company has to have at least 5 years of dividend history; and
  • The company has to have a payout ratio of under 50%

MET has a P/E of 8.5, has a yield of 4.05%, has paid a dividend for more than 5 years and has a payout ratio of 29%.

The Strike Price Will be a Price that Has only been hit a handful of Times on a Multi-Year Chart

It is my goal to collect the premium and not actually get stock put to me, so it would seem prudent to choose a price that has rarely been hit.  MET recently took a really bad hit where they already dropped 10%, I am taking the position that it is unlikely they are dropping another 11%.

MET

I Will Only Risk 50 to 75% of my Current Capital on Margin

Prior to closing out my HOG put I was at about 77% of my previous month’s balance.  I am going to use $13,000 instead of $12,000 for August because that is closer the moving balance.  So I still have my 48 strike open on EMR an this will be $3,500 if it is put to me which leads me to a 64% utilization rate ((4,800+3,500)/13,000).  I’d be happy if I could find another small put for this month!

I will Spread out the Expiration Date

Right now both my open contracts are for September.  If I buy anything else without closing I’ll have to look for different expiration dates.

All Premiums Received will be Reinvested the Following Month

My next purchase has to be increased by:

  • $9 – ADM Trade Closed
  • $9 – HOG #1 Trade Closed
  • $13 – Hog #2 Trade Closed
  • $25 – EMR Not Closed
  • $33 – MET Not Closed

Total of $89 I wouldn’t have had otherwise!

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