I sold some CSPs on ALGN this morning – before seeing Paul’s e-mail (honest).  After the carnage of a 25% price drop following the earnings release, and after a real quick review of the release, I didn’t see anything that looked THAT bad for the long term.  They didn’t paint a highly optimistic outlook, but neither was it total gloom and doom.  At any rate, I thought the stock would rebound in time, and I’m fairly risk tolerant, so I jumped in:

                $.40 premium on $26 PUTs for Oct 20 (expiring Friday)  --  1st out of the money strike

and a little later in the morning,

                $.30 premium on $25 PUTs for the same expiration  --  1st out of the money strike (but almost a full dollar out of the money)

IF these options expire worthless tomorrow, and with a per-share premium of $.01 (I traded multiple contracts), my APR is (.39/26) x (365/1) = 547% on the first one, and (.29/25) x (365/1) = 423% on the second.  OK, that was sort of for dramatic effect.  In the calculation I would normally use 4 days (till Monday) instead of 1 day for the time period, which yields APRs of 137% and 106%.

If ALGN slides down significantly tomorrow, and the shares are put to me, I’ll look for opportunities to sell CALLs.  However that’s very unlikely to happen, because at today’s close the deltas for those two option contracts were 0.04 and 0.00.


From: [] On Behalf Of Paul Madison
Sent: Thursday, October 18, 2012 10:22 AM
Subject: Re: [cool_club] RFI - Cash Secured Puts

First let me say I know several successful Tenthousandaires (I like that name) that are trading covered options so do not let that scare you off.

Second, not all companies are going to have good premiums on PUTs and CALLs all the time.  Sometimes the premiums will be good and sometimes they won’t be.  It will be based on how much angst there is around the stock which of course is driven by both fear and greed.  Sometimes, this angst comes ahead of earnings and inflates premiums (try to avoid this temptation) and sometimes it happens after earnings which can be a golden opportunity.

Right now there is not a lot of overall angst in the market and so premiums are not terribly rich.  Sharon McAllister was sharing with me the other day that the technical folks will tell you that often at a market top you will have very low VIX (volatility on the broad market).  As we have learned, low volatility usually means lower option premiums.

At last nights COOL_Club, I mentioned Align Technology (ALGN).  It is an example of a situation in which there might be an opportunity which would not involve huge cash reserves,   Of course, I wouldn’t recommend any trades without a fundamental understanding of the company and a thorough analysis of the reasons for the price drop.  If you did those things and felt the drop was overdone, it might be a situation to take a look at CSP’s   Even three contracts on ALGN would be exposing under $10,000  That seems like it would fit in what you are looking for.  I am not recommending doing it, I am just saying it is an example of the type of situation you want to look for on this or other smaller price stocks.  Get to know them really well, watch for what they do after earnings and see if you see opportunities.

Good luck and Good Selling,

Paul Madison

On Mon, Oct 15, 2012 at 11:47 AM, Malcolm Myles <> wrote:

Request for Information (RFI) on Cash Secured Puts.

I've been watching a couple of stocks that I think would be good additions to my portfolio.  I'd like to add them on with CSPs.  Here is my problem - the premiums are not calculating out as good uses of my money.  I'm a Tenthousandaire multiple times over, so I'm looking at adding a 100 or 200 shares of a company at a time.  To get the APR and pick up $100 bills, I need to write multiple CSPs, write CSPs in or at the money, or go so far out that I'm uncomfortable with the technical guesstimates.

Are CSPs substantially lower value for covered option writing than covered calls?  I know my FAST success was abnormal and not to be expected, but... CSPs appear to be a Hundredthousandaire's game.