Module 5
The Only Strategy That Bets On The Sure Thing!
This next weekly option strategy has several advantages. And, it’s the only method that bets on the sure thing.
It’s called a “married Put” and it involves a stock and option combination whose value is secured by a definite selling price that YOU choose. Plus this strategy has four different income methods and two growth strategies you can use as the market unfolds.
A huge benefit to you as a trader that uses this strategy is that, with a married put, you can expect a definite exit and at the same time have unlimited upside potential.
To set up a married put, all you need is a stock that has weekly options on it and a date by which you’re willing to sell. Remember, the “put” gives us the right, but not the obligation, to sell the stock at a preset price (the strike price we choose) until the expiration date. And you get to pre-determine your exit at 15%, 10%, 5% or even 2% loss NO MATTER WHAT.
With a married put, even if the stock price collapses due to fickle investors response to earnings or a corporate scandal…
Your Sell Price Is Guaranteed…No Matter What The Stock Does Before Expiration!
Better still, Calls can still be sold against your stock position, bringing in income while your position is protected.Here’s a real life example. This stock was on my list as a great one to trade for all the reasons I already mentioned…
EchoStar (DISH ) 42.32
Using a married put strategy, you might then have purchased both 100 shares of DISH and one $45 put contract. Look at the price grid below:
Let’s say the stock costs $42.32 a share or $4,232 per 100 shares.
The put option contract that locks in DISH’s sell price at $45 ($4500 for 100 shares) costs $4.10 or $410 to protect 100 shares.
TOTAL INVESTMENT: $4232 + $410 = $4642.
Now let’s look at the scenario: If you had bought only the stock, you would have your whole investment of $4232 at risk.
For protection you used a married put, paying a little more but you now own an asset whose worth is guaranteed to be at least $4500 for the next seven days.
It cost $4642 but it cannot fall below $4500 even if DISH collapses in price.
Even if the CEO takes his secretary to the Bahamas for the weekend and dies from too many Martinis, Methodone and Vicodin.
Even if all the company executives get busted for accounting fraud.
Even if a foreign power blows up their next satellite launch…
No Matter What !
That means that you sleep like a baby no matter what is happening in the world or on Wall Street. You cannot lose more than $142. Because of your initial setup, even covered calls (if you apply them properly) can now be used with zero risk (!) and pull worthwhile income.
Let’s see one way this might work:
Bringing In More Income Selling a Covered Call…
EchoStar Communications Corp. (DISH) 42.32
In our example, DISH continues to rise for a while. If you had sold a September $42.50 call, you would have picked up $360. Our little “stock plus hazard insurance” combination would now have ZERO RISK because…
- The original $142 AT RISK amount is completely offset by the money you brought in selling the Call.
- If you are called out of the stock, you immediately have $4250 in the account.
- You still have a free and clear Put option that you can sell for whatever it’s worth, if you want.
When this happens, you are BULLETPROOF. Your asset can still pick up value, but it cannot lose any.
Trading The Calls
Another great advantage to this current scenario is that as DISH’s stock price goes up and down within the context of an uptrend, you can trade the Call options. You may be able to buy back the call when the stock dips.
For example, if DISH were to drop to 39.80, the call may drop to 1.20 and if you bought it back at 1.20 after you sold it for 3.60 you would make a free and clear $140 or about 38% return.
Now, when DISH climbs back up in price you can then sell the call again at 3.60 or higher and play this game as long as you’d like.
The return here can be off the charts.