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.

GME

The two trades I made were with a Strike Price of:

  • $26 and
  • $25.

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.

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