Just a quick trade idea that I put on recently. I sold $5 strike November '20 CRON puts for a credit of 0.86 on Tuesday afternoon. This trade yields about 21% within one month, unlevered, and the stock has to drop almost 40% before you start to lose any money. With this trade you are committing to buy CRON at a price of $5, should your option be assigned. This seems like a fine deal to me, as $5 has served as a strong price base over the last several months and I expect it will continue to do so as various weed names continue to see more and more interest broadly. With the leverage I have at my firm, I'm able to achieve a 100% cash on cash return in this stock in one month, using my allocated buying power / capital contribution.
CRON , while generally volatile, doesn't deserve this type of volatility pricing, and shouldn't yield this much return for accepting long risk in it. That said, if I do get assigned, I simply plan on selling OTM calls to further lower my cost basis and generate cash flow. This is what's commonly referred to as a 'wheel' strategy. Why do people make trading so hard? Start learning about options and how you can crush the markets and have huge margins of error on trades while still profiting (I don't sell anything, just passionate about options lol).
Trades like this happen every day and all over the place, if you know where to look.
Man options seem so easy yet so complicated in detail. Probably a noob question but why would you buy the stock at 5$ if your counter part can sell at 5..I mean did you not double the risk in that case? If price drops further, you loose on the stock you bought, you loose the premium you sold the option for and you have to pay the difference to 5$ - or did I get it wrong? Were you just so convinced that price would not drop below 5$?
PropNotes
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@MaPaC, Join the theta gang chat -> and someone will help you
MaPaC
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@Pholesolus, Thx, Just to clarify for any other option noobs: The comment about committing to buy the stock at 5$ was just a hint, that you will have to buy the underlying stock if the option hits the strike price (and therby gets assigned).
adnandimashki
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Sorry if my question is silly, but what happen if the share dont drop under $5? You keep the credit?
YBearBull
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@producersqa, yes
PropNotes
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@producersqa, yup!
EZcurrency
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Great analysis! I did a similar trade, but in a different stock: BCLI Dec18 10 short put. Just sold puts for about $5 credit (Dec expiration) ... so it needs to fall to $5 to b/e. Great support, good news out today, more news end of Nov (according to forums), lots of shorts ... so should squeeze up. Almost free $$$. :-)
PropNotes
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@EZcurrency, Just seeing this - I sold a bunch of the 5 and 7.50 strikes in this. Crazy premiums - essentially the market is sayign this could go back to $3 in the next month - presumably if the drug news isn't good.