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Stock High— Coming Down

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Sell Call—Buy Put

Sell the call for $1.50 ($1,500 if you purchased ten con­tracts) buy the put for 25tf. Capitalize on each—depend­ing on the time left before expiration—at the optimum time. Buy back the call or let it expire and sell the put at a profit.

 

Stock Price

Call Price

Put Price

$15.75

$1.50

$0.25

15.00

1.00

.75

14.50

.75

1.00

14.00

.50

1.25

13.50

.43

1.50

13.00

.125

2.25

 

 

You know I like getting rich in bite-sized piecesTwo plays on the same movementtalk about two mints in one!

 

 

Once again, so many more opportunities open up when you sell than when you buy. Don’t misunderstand; I still make most of my money buying calls—on pure option plays. I try, however, to sell as many calls and puts as I can.

Remember, writing covered calls is a great strategy for IRA’s and other pension-type accounts.

Generating income, infinite returns, buying stock whole­sale, double-dipping with highly volatile stocks (selling two calls or puts in one month)—are just so much fun.

Now look at the following charts to see possibilities. I added arrows to show the buy and sell ranges.

Opposite

Buy a put, sell a call.

Sell a put, buy a call.

Look at how many opportu­nities a volatile, but upward-trending stock options.

And on and on…

Read the following example: you find a stock that is rolling, rising from $13 and bouncing off $16. It’s down to $13 and is rising quite rapidly. When it hits $13.50, you sell the $15 put for $2. Ten contracts equals $2,000. Nice cash flow.

Now, when the stock gets to $14.75, the put is going for 50g. You buy it back at a cost of $500. You get to keep the $1,500 with no further obligation. However, why not cross over and sell the $15 call? Do this when the stock is at $15.50 or $15.75. Yes, it might rise or stay above $15 and you’d have to buy the option back at a small loss, but the $15 premium could easily be $1 to $1.50—another $1,500 of income. Remember, check the charts. This one is moving rapidly. It may go under $15 and you’ll have a second premium—yours to keep. Now as it dips down and starts up, repeat the process.

True, when it’s above $15 and you think it’s going down you could do a pure $15 put purchase play. And yes, when it hits $12 or $13 you could do a pure $12.50 call or $15 call purchase play.

You could even do a double play.

1. Sell a $12.50 put and buy a call when the stock is at $13 when you believe it’s on the way up. The premium will be about the same. However, as the stock rises, the money you received for selling the put looks better because the put value goes down (remember, you sold it when it was nice and high). At the same time your call premium goes up in value. Sell the call now for a profit and keep the profit for selling the put, or even buy back the put while it’s low. Wow, I can’t wait for the market to open tomorrow. And yes, we can wax philosophical all day long—hey, if I have to potentially buy the stock at $15 and I’ve purchased the right to buy it at $15, what if it’s close? Your brain might catch on fire.

2. Sell a call and buy a put when you think a stock may go down a bit. This way you pick up the nice call premium. If you own the stock, you won’t get called out. The dip is offset by the rise in value of the put option premium. You can sell the put option at a profit.

If you don’t own the stock, you keep the premium for selling the call and then get to sell the put at a higher price when the stock goes down. This is a form of hedging, and what a hedge it is!

Now, don’t make this too complicated. You’ve read about rolling stocks and rolling options. You’ve heard me teach about peaks and valleys. You’ve heard of some straddles— buy a call and put on the same stock, same month, same strike prices, and wait for a big move either way. Well, I call this a side-straddle. A calculated, predictable way to capture the up movement, or the down movement—TWICE.

I cover this more extensively at the Next Step Wall Street Workshop. You’d be smart to be there. Call 1-800-872-7411. These seminars sell out, so call now. Note: the Next Step Wall Street Workshop is only available to Wall Street Workshop graduates, or people with more stock and option experience. Come to the “BBQ.”

 


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