Been pretty active with regard to buying and selling short puts in the past few days.  I am not always going to get a chance to update the day of, but such is life.  As I get more and more active maybe I’ll make these updates more of a weekly post rather than every time I sell to open or buy to close.  I am only a month into this experiment and as you see below I am already breaking my own rules!

Buy to Close EMR

EMR was the second put I ever bought, and thus far the longest one I have held.  Usually I like to hold until I can buy to close at a price that is 50% of what I sold to open.  In this particular case, I was locking up $4,800 of risk-purchasing power that I wanted back.  So I sold to open on 7/15/2016 for .25 and bought to close the contract for .15 on 8/11/2016.  This provides a gain of $10 (minus nominal fees).  This was a P/L of .21% or 2.82% annualized.

I probably could have held for another week or two to get to my 50% gain, but I wanted to sell another contract or two using the same $4,800 at risk.

Buy to Close GME 2

On 8/9 I sold to open a short put with a 9/16 expiration date and a strike price of $25 for a premium of .33.  It was only 2 days later on 8/11 that I was able to close the contract for .15.  A P/L of .72% and an annualized return of 87.60%.  I still have GME 1 open, but my guess is that I’ll be out of that contract this week.

Sell to Open HOG 3

This is the third time I am dipping into Harley Davidson, except this time I broke my own rules (kind of).   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%

HOG has a P/E of 13.5, a yield of 2.6%, has way more than 5 years of dividend history, and the payout ratio is 33.9%

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

….and this is where I ignored my own rules.

HOG 3

My previous strikes were $40 and $45 – $50 is cutting it close but still provides me with a cushion of about 5%.  The reason I did it was because of the short expiration date (see below).

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

I closed my EMR position and then immediately opened up my HOG position.  I will calculate this after I describe my next sale below.

I will Spread out the Expiration Date

This provides me with an expiration exposure of August 19, which I didn’t have (I was all September expiration dates).

Sell to Open MET 2

This is the second time I am dipping into MetLife.  Let’s go through My Methodology for Selling Short Puts.

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 10.2, a yield of 3.9%, a deep dividend history and a payout ratio of 40%.

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

I don’t actually want the shares put to me so I pick a stock price that has rarely been hit and provides a deep cushion

Met 2

So with a current price of around $39 and a Strike price of $35 – the stock would have to drop approximately 10% for me to be put the shares.

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

Currently, I have open just the MET and HOG puts.  The HOG could cost me $5,000 and the MET could cost me $3,500 so I my purchase risk is at $8,500 which is about 65% of my $13,000 balance.  I am probably going to have to sit tight until these trades shut down.

I will Spread out the Expiration Date

The two open contracts are on different times – check!s

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