I'm placing a GTC order to sell an August $11 put on CROX. Credit $0.20 Annualized % return just above 16%... if order filled in next day or two. Stock needs to trade between $14.20 - $14 to pay the credit i desire. Stock currently trading $14.40. Tech support in the $10 - $11 area, per the 5 year chart. Fundamentals are a mixed bag of good and so-so. But overall, financially healthy and reasonably valued at my desired strike. The "so-so" fundamental criteria, are mostly related to the economic siituation in Europe. But at a potential price of $11, with a break even of $10.80,... I believe any further deterioration in Europe's economy, still gives this pending trade a reasonable cushion, and a high probability of success, to earn 16% annualized.
Your returns are based on the margin you have to put up? So how do you account for the margin changing?
I'm not basing the potential annualized % return on margin. I'm basing on the following formula and assumptions. Assuming the trade gets filled in the next day or two: I'm using an "annualization factor" of "9", to represent the trade taking place over 5 and a half weeks. First I divide 100 by my strike..... = 9.09 I then multiply the "annualization factor" of 9 times the 9.09. I then multiply that answer times the credit of $0.20 Hence, 9.09 X 9 X 0.20 = 16.36% The annualization factor is actually a bit higher than 9, but I'm allowing for the cost of commission. And I don't really care if it turns out to be 17% vs 16%. Either way I'm still earning the same DOLLAR amount of profit. Others may have a different formula they use to calculate the annualized % return. But I like this one as I can usually do it in my head, and it's just as accurate as any other. Once you memorized the answer of "100 divided by various strikes", it takes a few seconds to calculate the rest.
makes sense. sorry i had a brain fart while reading your first post. i kept thinking .2/11 is 1.8% and so he must be calculating using margin which could be a little over a $1 for this... I like that trade.
If I want to assume the trade gets filled tommorrow, then the "annualization factor" would be 9.6, as I would divide 38 days into 365. Thus, 9.6 X 9.09 X 0.20 credit..... = 17.45% But either way, my dollar profit earned remains the same, regardless if it gets filled tomorrow or the next day, or the next. CROX needs to test $14 this week, for my order to get filled.
so are the percentage returns are talking about referring to a cash secured put or are you talking about the percentage you're getting a return on related to the margin you're putting up?
The CROX order I discussed yesterday was filled this morning. Sold puts on $11 strike for $0.20 credit, for August. Annualized % return about 17%. OTM safety cushion....22% I'm basing the % return on the assumption that the stock gets put to me "at my strike",.... or as I would a cash secured put. Formula I use is the same for 1 contract or 100. The credit may not seem like much. But based on an $11 strike and 38 days of exposure, it's a reasonable 17% annualized return,.... particularly nice with a 22% otm safety cushion.
Long JPM & WFC July13 ATM Straddles (@ 1.50, 0.99) (Short calendars could work here as well, given the favorable vega profile)