This public post of the Options for Income service is designed to provide an overview of what the service offers as well as highlighting a previous trade that we have made within the service. Whether or not you are currently an options trader or would just like to learn more about the subject, you have come to the right place! As we examine some of the previous trades you will see how positions are structured and what strategies we favor for reducing or even eliminating position cost. Let’s get started by looking at the EEM trade we initiated last week.
In the Options for Income service we feature a subscriber chat room where we post real-time trade alerts. This was from May 7th:
TRADE ALERT: Buying Sep Puts on EEM on expected move lower. We will sell further OTM Puts later if EEM follows through to the downside to reduce/eliminate risk in the position. Will close the trade if EEM can close back above the 50 SMA (currently 43.40). BUY TO OPEN: Sep20 EEM 40 Puts. We are sizing the position at <1% of portfolio size. Place “limit” “day” order to buy at $1.00 (or better)
We were filled for $.99 each. Later that same day we posted this: We have already entered the orders to manage the EEM position if the price of EEM declines from here. This is a very mechanical way of managing risk that requires no chart reading or price projection skills. When we enter a longer term position we often prefer to use risk reduction as the trigger for potential trades. If you have many different positions it also helps you avoid missed opportunities that you didn’t see until after the fact. Each trader should have their own risk management technique that fits their style of trading!
The next day (May 8th) we posted this message: Good morning all! Yesterday I discussed using a mechanical strategy for removing all cost from our EEM Put position. We own the Sep20 EEM 40 Puts and are resting orders to sell both the Sep20 EEM 39 and 38 Puts for $.01 more than we paid to buy those 40 Puts. Right now I am cancelling the order to sell the 39 Puts and I will replace that order 1 minute after the opening of trade this morning. Why am I doing that? It is possible that, if EEM opens considerably lower, I will get a bad fill on that resting order. After the market is open for a minute or so, I can then replace that order at my original offer or potentially a higher offer if the mark price on the 39 Puts is higher.
And then on May 9th prior to the open: See my comments on EEM 39 Puts from yesterday morning 15 minutes prior to the open. I will repeat that process today. EEM is trading lower in the pre-market. 5 minutes into the trading day: Filled on selling Sep20 EEM 39 Puts for $1.14. Now we have reduced the risk on our Sep20 EEM 40 Puts by a little more than half. Still resting order to sell the 38 Puts at better prices. And then, approximately 2 hours later: We sold the Sep20 EEM 38 Puts for $1.02 just now. With the $1.14 we collected earlier this morning for selling the 39 Puts, we averaged $1.08 for all of the Puts sold today. That removes all cost and locks in a profit on the Sep20 EEM 40/39 Put spread and the Sep20 EEM 40/38 Put spread.
Even though this is a no cost position, it is not a no risk position! Fully $1,000 of the current profit of $1,184 is still at risk if the price of EEM is above $40/share at the September 20th expiration. We have only begun to manage the risk of this position, there are still various strategies that we can utilize to continue to lock in ever higher levels of profit as the trade progresses. Join us in the chat room for more updates!
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