[click here to see my timing on a chart]
sold (to open) 4 August 2014 $124 puts at $1.05
received $420 cash
Reasons for initiating this trade:
- bottom of stochastics ("oversold") (see chart)
- price of GLD was tucked in between the two moving averages (see chart)
- probability of success: 65%
8/6/2014 (10:44 am)
bought back all 4 puts at $0.45
NET PROFIT: $219.79 (in two weeks)
Reasons for closing this trade:
- GLD has been pretty volatile the last two weeks
- my strike price is just barely out-of-the-money
- 9 days left until expiration (anything can happen)
- TAKE PROFITS!
LESSONS:
I normally close (buy to close) my short puts when the stochastics are at the top, but in this case, with 9 days left, I decided to just take my profits and remove the risk from my portfolio.
GLD was trading between $125.47 and $126.43 on 7/22/2014 [when I sold (to open) my puts]. If I had BOUGHT 400 shares of GLD instead, I would have broken even on 8/6/2014 (when I closed my puts).
That's why I prefer to SELL PUT OPTIONS. I make money even if the underlying goes sideways.
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