Monday, July 18th, 2016

Put options- BA Free Trade

Cash secured puts are one way to buy stock on the cheap. When you write a put an amount  equivalent to the value of stock is reserved in your account and set aside, just in case you are put the stock upon expiration. Many professional traders buy stock by writing naked puts where a margin is used instead of totally securing the put. That of course is the preferred way to go, but if you are just starting in options you would need a way to write puts and the best alternative would be a cash secured put.  Last month we discussed Covered writes strategy which is equal to our selling puts stratgey.

Lets look at a trade on Boeing BA as presented by one and only Dan Sheridan of CBOE fame. His strategies are wonderful in the sense that they are simple and so good that I often trade them in my accounts. As Dan Sheridan says learn the craft and I am always learning from him everyday.  The simple growth of an idea is what it takes to make it work. How would you get such an idea ? That’s how you come to this blog and read it.  Here is what the trade looks

 

 

SELL JULY 40 PUTS =  0.75    or $750 ( prices as of 5/29/09 close)

Break Even = 40-.75= 39.25 

So if BA stays above 39.25 by July expiration the trade will make money and you could either close out the position for profits or be prepared to buy stock at 40 while your cost will be 39.25, because you already received 0.75 in premiums.  Its a nice way to buy stock than an outright purchase that carries more risk. But in this case BA has to drop from 44 to 40 and cause you any concerns.

Enjoy the trade,  you bet I am doing it myself.

In case you have not joined us- there are several of these income generation trades that we carry every month and they are posted in the members area. Click here to join You too should be making money like us.

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