Sunday, September 20, 2009

The CAT Jumped! - Sept Trade Results

Last Friday was options expiration day and our option premium collection strategy which generates monthly income worked flawlessly. We wanted CAT to stay above $42 by Friday Sept 18 and boy did it ever! CAT jumped 12 points since we traded our option closed at $53.42 Friday well above our strike price.

The big jump reminds me of the day I bought some piping hot Kentucky Fried Chicken for lunch, you know the 3 piece lunch box with mashed potato's and gravy, coleslaw and a biscuit with butter and honey. I took my lunch over to my Sisters house to eat and visit with my nephews. The second I sat down to eat my Sister's cat caught a whiff of the Colonel's 11 herbs and spices original secret recipe steaming hot chicken and went MAD! It screamed with one of those famous cat screechy Rrreeeeeeooww calls and thrashed wildly at me scratching me with its claws! I made a reflexive move to half stand up in my chair and quickly grabbed my box of chicken as it started to fall toward the floor with the cat tearing at my arms. Without hurting the crazed cat I quickly flexed my arms straight and the cat popped off of me when my elbows snapped.

Seeing the cat turn towards me I sensed it would strike again! At that very moment (and not a second before) I decided the sacrifice of one piece of chicken would be worth keeping the cat a bay, so I quickly reached in the box and grabbed the first piece that my hands touched flipped it backhand out of the box aiming for it to go over the cats head so that it would see the chicken and retreat away from me. My throw was dead on and the cat did a 180 turn away from me and headed for the chicken. (Thank heavens I grabbed only a drumstick.) The cat now chomping on my drumstick was appeased and I sat back down, let out a huge sigh of relief and gave my Sister a "what the hell is going on here" look.

Apparently my Sister was trying to teach her Son's a lesson. She told them that they had the responsibility to feed the cat, because it was their cat and she was no longer going to feed it. Oh yes, then she yelled at the boys "I told you last week you had to feed the cat, you feed her right now!"

Okay with that fun little cat jumping story off my chest (and arms) back to this months trade results...

If you recall my September 1st post 'Shooting the CAT' when CAT dipped below -80 on the Williams %R indicator which signaled the stock was oversold; I sold a Put
on the $42 strike price option at 95 cents per share ($95/option contract) for a 2.26% return. With the objective to have CAT close above $42 eighteen days later on expiration day, so I don't have to purchase (assigned to me) any stock.

Before - 9/1 Trade Entry Date to 9/12:

After - 9/18 Expiration Day:

As you can see this CAT really jumped
during the 18 days that we held the option it broke through the $49 resistance level to close at $53.42 on expiration day. This was 12 point higher then our strike price and 10 higher then when we entered our trade. A huge margin of safety, so the lesson here is about timing and how using the Williams R% indicator to buy when the underlying asset is deeply oversold helps us stay above the strike price and reduce the risk of being assigned the stock. Now are account in safely back in all cash and we can rent out our money for more income next month!

Related links of interest see: Timeline History of KFC

1 comment:

  1. Was your sister teaching the boys the lesson or the cat? That cat was a hungry as cash investors looking for some yield... :)