On August 4, 2016 I sold to open a MET September 16 put contract with a strike price of $35. I received a premium of $33 ($32.42 after fees), and it wasn’t even 24 hours later I rolled out when I bought the contract back for half – $16 ($16.58 with fees). In 24 hours I received a Profit/Loss % of .49% or 177.29% annualized (not that it is likely for me to repeat that everyday).
Selling to Open GME X2
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%
GME has a P/E of 8, has a yield of 4.9%, has paid a dividend for more than 5 years and has a payout ratio of 38.8%.
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. This is not the nicest chart I have used but still holds up for a few years.
The two trades I made were with a Strike Price of:
- $26 and
I Will Only Risk 50 to 75% of my Current Capital on Margin
I was at a 64% utilization ratio prior to closing my MET Position. Removing the MET purchase risk and adding the two GME options I am at a 66% ratio. (($2,500+$2,600+$3,500)/$13,000). The $3,500 is a still open EMR put sale.
I will Spread out the Expiration Date
All three open contracts are for September, but 2 of the 3 are differents weeks in September:
- EMR is Sept 16
- GME 1 is Sept 2
- GME 2 is Sept 16
All Premiums Received will be Reinvested the Following Month
To simplify this part of it, I am going to refer to the previous months actual net proceeds. In July I was able to purchase $15 more. In August thus far I have:
- HOG 2 – $12.84
- MET – $15.84
And I still have open EMR, GME 1 and GME 2.