Today at 2pm the Fed will announce if they will raise interest rates now or wait until December’s meeting. I believe an increase is coming but I don’t think it will be today. You must remember it can be today and a trader must think how they want to play the market with big new imminent. I do own stock so I want to get some upside if the market goes up after the announcement but I also want a little protection if the Fed raises rates and the market takes a big dip. All my stock holdings do have Calls sold again for insurance accept 1000 shares of YELP. These 1000 shares I purchased for $39.35 and with the stock at $37.85 I just sold 10 contracts of the 11/18/16 $40 Calls for a premium of $2.30 (+$2300). I like this deal! It is a 2 month option but I’m getting 6% on my money invested. That’s a nice Rate of Return! This Call gives me $2300 of insurance plus with the stock at $37.85, the $40 Strike Price gives me room to make some upside if the market goes up. Since this is a Call sold on previously owned stock I give this trade a Risk Factor of 1. Here’s the sell order:
Sell to Open 10 YELP 11/18/16 $40 C @ $2.30 (+$2300)
I’m working on another page which will be a Grasshopper trading page. On this page I’ll have trades that will be good for a beginner with not much money in their account. I know some people get discouraged when they see the amount involved in some of my trades. This new page will list trades a Grasshopper can make with a smaller account. A trade like the one I just made might end up on that page. If you had an account of $40,000 you would be able to make this trade. With YELP at $37.85, 1000 shares would cost $37,850. You could do what I just did. Buy the stock and sell 10 contracts and bring in a $2300 premium for a 6% Rate of Return in 2 months. Plus, if the stock hits the Strike Price by Expiration Day you make the capital gain on the stock. If you get assigned you would make $2.15 on the stock. On 1000 shares that’s $2150. If this happens you make $2150 on the stock and $2300 on the premium for a total of $4450. Now it’s almost an12% return in 2 months. This is the type of deals a Grasshopper must find. This is the type of deal I look for. If you only have an account of $20,000, you can do this deal for 500 shares and bring in a premium in of $1150 and you still have a 6% return. On assignment the stock gain is $1075. Stock gain plus premium is $2225 for the 12% gain. This is something to get excited about!
Steve
The Options Coach