Monday, July 26, 2010

August Trade Generates 22.6% Annualized Return!

The August trade is on...

On July 19th we placed the following cash flow trade: Sell-to-Open GDX Aug 21 '10 $44 Put at $0.83. For every option sold you pocket $83 cash straight into your account! This conservative cash-secured Put trade generated 1.9% monthly income (22.6% annualized).

At the time we placed the trade GDX (the underlying asset) was selling at $47.10 per share. The Option Income indicators at the time were as follows:

  • Williams %R = -90 "Extreme oversold"
  • Trade Probability = 77.2% Success
  • Profit = 1.9% (26.6% Annualized)

More about this trade and why I like it:
Our $44 Put strike price is well under the recent $47 support level. If the price of GDX moves up, goes sideways, or trends lower but stays above $44 by the end of trading on August 20th (option expiration day) the option expires worthless and we keep the option premium!

On the other hand, if the price of GDX is below $44 on August 20th the option will be exercised and we'll be assigned GDX stock at $44 even if the price is lower at the time. Currently with the price of GDX moving up to $48.89 we have a 90.4% probability of success! If you think about it even if we get assigned the stock we just purchased an ETF that we would like to own at a great price!

So far I like our chances!

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