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Wednesday, August 13, 2014

Russell 2000 (IWM) Put Options

SEE YOUTUBE VIDEO (comprehensive lesson on how to manage "naked" puts that go "in-the-money")
  

7/9/2014 (12:16 pm, PT)

sold (to open) 6 August 2014 $113 puts at $1.33

Reasons for initiating this trade:
  • probability of success:  68%
  • almost at the bottom of stochastics (see chart)
  • candles at the 50 EMA (possible support)

8/13/2014 (9:31:41 am, PT)

bought (to close) all 6 puts at $0.49

Reasons for closing this position:
  • my short August 2014 $113 puts are FINALLY out-of-the-money (barely!!)
  • two days left until expiration (two days are a long time when the strike price is barely OTM)
  • almost at top of stochastics (see chart)
  • TAKE PROFITS! (VERY important)

NET PROFIT:  $480.68 (in 5 weeks)






THE LESSON

If I had bought 600 shares of IWM on 7/9/2014 ($116.56 average) and sold them on 8/13/2014 ($113.18 average), I would have LOST $2028 (approximately).

However, by SELLING PUT OPTIONS instead, I have a PROFIT of $480.68!
That's why I LOVE SELLING PUT OPTIONS.

On 8/1/2014, IWM traded as low as $109.86 (see chart) .  My August $113 puts were "in-the-money" by nearly $3.14.  If I had panicked and closed my position on 8/1, I would have ended up with a pretty large LOSS (nearly $1100).

However, because these options didn't expire until 8/15, I decided to hold them and wait.  As long as the "extrinsic" value of those options were still large, I was not at risk of early assignment.

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Learn to SELL PUT OPTIONS and GET PAID up front.  It's easy, fun and profitable.
Learn on your own for FREE at www.youtube.com/user/moneyandlilia or pay for 1-on-1 training (details here).