Email – #491
** Dear 400 Report Readers,
I’d like to take this opportunity to answer some of our mailbag questions, so here we go:
Q: You asked that we advise you of the results of our trades in bank of America and USSteel. I bought 20 OUSAD for 1724.99 and sold them for 1974.94 (a profit of 250), which is not close to the 20% profit you indicated but about 14.5% (Which is nice, never-the-less).
A: Our Profit numbers are calculated using the “prints” given to us by our recommended brokers, or the mid point of the trades after the recommendation was sent out. Some of you may get higher returns or lower returns. The following email I received on entry price should help illustrate the point further…
Info below provided per your request in today’s issue of The 400 Report:
US Steel LEAPS (OUSAD)
- Purchased 1/30/09 @ $0.65
- Sold 8/13/09 @ $1.00
Ignoring trade commissions, this resulted in a 53.8% gain in 6 1/2 months.
-Ron S.
Q: I also bought 5 VBAAC costing 1508.74 and sold them for 2236.20 with a profit of 727.46. This profit does not cover the cost of 7 VBAMQ for 1359.24. Therefore, I am not in the call at zero dollars, but 632. If I am doing something wrong in my trades, I would appreciate your advising. As you can see, I buy equal dollars of puts and calls. Is that my problem?
A: That’s a nice 48% return on your call position! To answer your question though, I would recommend a walk through the trade to fully understand it.
We bought the call option for 2.70 and the put option for 1.90 for a total outlay of 4.60 per contract (put and call). Therefore our cost is $4.60.
Since we were able to sell the call option for $4.60 or better, we were able to recoup the cost in the trade for both put and call. Once again, I’ll refer you to a testimonial from a member who was in the same trade:
From what I understand about options, when you execute a straddle you want the stock to go either way up or way down. That is exactly what I got with Karim’s Bank of America recommendation.
In fact, because the stock went up practically in a straight line, I was able to sell the call side of the straddle for exact price that I bought the whole straddle for. That means I own the put for free.
Now if Bank of America goes down I will turn my zero cast basis into BIG profits. Thanks Karim for your options expertise! I cant wait for your next one!
-H.S.
Q: I can’t understand how to take the said profit. Do I sell the put?
How did you calculate the 80% of profit? The $4.90 refers to Jan. 11 $17.50 put, doesn’t it? But why does it have something to do with our options?
We also have unlimited upside on our PUT position. Does that mean we’re to keep the original put?
A: We took a profit on the call position, leaving the put position open. The 80% profit was calculated by dividing the profit $1.90 over the cost $2.70.
And yes: The unlimited profit potential refers to keeping the put – the January 2011 $7.50 puts.
Q: Concerning your e-mail today about U.S.Steel and Bank of Amer options, I still have my Bank of Amer. VBAAC calls. When I got the wire to sell at 4.90 on 8/11 at 2:15 CDT, the quote was 4.50 bid and 4.55 asked. Since then, there has not been a chance to sell at 4.90
I need advice as to what to do.
When we issue a sell, we mean sell. Unless we say that you should try and get such and such a price, our recommendation is to get out of the position. In the case of BAC, the price was $4.90 when I was writing the sell rec. and we ended up getting out at $4.60 or thereabouts once the recommendation hit the wires.
On Friday, you could have sold the position for $5.20, higher than the $4.90 on the day of the sell recommendation, like this member in the same trade:
Bought the BAC call leaps for 2.70 at end of May; Sold them on 8/11/09 for 4.60. Still holding the put leaps.
Nice one!! Thanks.
- Dennis A.
I also received an e-mail requesting a step-by-step guide to making an options trade. It’s a legitimate request, and one I’m sure many of you would benefit from.
Personally, I can’t think of any better guide for such detailed instruction than our Options Primer, which has plenty of helpful data on LEAPS and the larger options world. The link above will bring you directly to our online copy of the book.
Or, if you need more personal advice, you can also contact our Pillar One Partner, Greg Long at Gunn Allen Financial: 1-800-329-1984.
Karim
Current Portfolio:
Company / Option: Fifth Third Bank Jan. 2011 $7.50 puts
Option Symbol: OJH MU
Current Price: $1.85
Comments: Buy. Don’t pay more than $1.95.
Company / Option: Petrobras Jan. 2011 $25 puts
Option Symbol: VDW ME
Current Price: $1.85
Comments: Hold.
Company / Option: US Air Jan. 2011 $7.50 calls
Option Symbol: ZTG AU
Current Price: $0.65
Comments: Hold.
Company / Option: Pulte Homes – strangle
Jan. 2011 $7.50 put (bought)
Jan. 2011 $15 call (bought)
Option Symbol: OPN MU
Option Symbol: OPN AC
Current Price: $1.10
Current Price: $1.90
Company / Option: Manitowoc – strangle
Jan. 2011 $2.50 put (bought)
Jan. 2011 $7.50 call (bought)
Option Symbol: VMT MZ
Option Symbol: VMT AU
Current Price: $0.45
Current Price: $2.05
Comments: Hold.
Company / Option: United States Natural Gas (UNG) – bull spread
Jan. 2011 $20 call (bought)
Jan. 2011 $25 call (sold)
Option Symbol: ZZM AT
Option Symbol: ZZM AY
Current Price: $1.40
Current Price: $0.90
Comments: Hold.
Company / Option: Bank of America – strangle
Jan. 2011 $7.50 put (bought)
Jan. 2011 $15 call (bought)
Option Symbol: VBA MQ
Option Symbol: VBA AC
Current Price: $0.70
Current Price: $5.30
Comments: Hold.
Company / Option: Yamana Gold – bull spread
Jan. 2011 $10 call (bought)
Dec. 2011 $12.50 call (sold)
Option Symbol: VPP AB
Option Symbol: VPP AV
Current Price: $1.85
Current Price: $1.25
Comments: Hold
Company / Option: Akamai – bull spread
Jan. 2011 $15 call (bought)
Dec. 2011 $20 call (sold)
Option Symbol: OMU AC
Option Symbol: OMU AD
Current Price: $5.60
Current Price: $3.30
Comments: Hold
Company / Option: Motorola – bull spread
Jan. 2010 $7.50 call (bought)
Dec. 2010 $10.00 call (sold)
Option Symbol: MOT AU
Option Symbol: MOT AB
Current Price: $0.72
Current Price: $0.17
Comments: Hold