by Darlene Nelson
Dear Traders and Friends:
Although it is not exactly bull market territory, and perhaps not even a bear market rally underhand... there are times when a stock has a compelling reason to rally to the upside anyway – and that is in STOCK SPLIT TERRITORY! We are finally beginning to experience stock splits more periodically so I think it is time for me to share my secret weapon – CHICKEN BULL PUT SPREADS!
I have been known to get as much as $2.75 in a Bull Put Spread the day before expiration date! That is almost unheard of... but let me share with you my CHICKEN BULL PUT SPREADS.
What I do to be more conservative, remember CHICKEN as I am, is I will look for the support line of the stock. Once I know what that price is, I will then sell a put with a strike price below the support line price. Then I will buy puts one strike price lower than the puts I sold.
Here is an example of a BUPS I just did on EBAY, which is splitting at the end of this month. This is not exactly my best credit spread, and it is not as chicken since I am obligated for several days on this one...but it is a real one I found yesterday, which will give you a good example of what strike prices to do. The money is still sweet here anyway, even though it is less chicken than my normal BUPS.
Looking at the following chart you can see eBay has an uptrending support line above $100 around $101.
Based on this chart, I will sell the $100 puts which is a strike price LOWER than SUPPORT. The 100 level is marked by a dashed line on the above chart. Remember selling puts means you agree to buy the stock at the strike price you have chosen (or someone can "put" you the stock at this price).
If the stock is trading at $101.50 there is little chance you will be forced (obligated) to buy the stock at your strike price of $100 when they can sell it at market for more. They will not want to exercise their right to sell the stock to you for $100 when they can sell it at market for $101.50!
To avoid being naked on your puts, you will buy an insurance policy by purchasing a put that is one strike price lower than the strike price you sold. In this case if you sold the $100 puts you would buy the $95 puts.
To be safe buy your puts first. Technically you will not be naked if you sold puts first and buy puts before the market closes, but some firms will fight with you and say you had a margin requirement during the day!
Now with the pending stock split, the stock is motivated to run up! If the stock stays above $100 on expiration date you just get to keep the money!
In my case I sold the 100 puts for $0.50 and bought puts the 95 puts for $.10 so I had a net credit in my account of $0.40. Now for those of you who haven't been through my classes and workshops,40 cents may not seem like a lot of money. If so, sign up for my free trading classrooms right away! In this trade I did 20 contracts, so if the stock stays above $100 I get to keep $800.00 for 3-1/2 days of trading!
Of course, this isn't a recommendation to jump into this strategy. You first must learn and fully understand it! Never do a BUPS unless you know how to unwind one, in case the trade goes wrong! To unwind, if the stock appears to be falling, buy back the puts you sold for a cost…and then let the puts you bought make money for you as the stock falls!
What a sweet deal, first you are cheering the stock goes up...and if it does not, you unwind the upper leg and bet on it falling!
For a more detailed report on CHICKEN BULL PUT SPREADS check my site in the future for the new report coming soon!
I hope to see you at one of my live classes soon - find out why I am hailed the "BEST COVERED CALL WRITER IN AMERICA"! It is time to put the profits in your account, as I share every secret I know in my two day class called LIFESTYLE TRADING WITH LEAPS coming soon to a major city near you. Don't let the word LEAPS fool you, everything I teach can be done on stocks, but I can't promise you will ever want to trade stocks again after taking my class!!!
Happy Trading!
Darlene Nelson
Dear Traders and Friends:
Although it is not exactly bull market territory, and perhaps not even a bear market rally underhand... there are times when a stock has a compelling reason to rally to the upside anyway – and that is in STOCK SPLIT TERRITORY! We are finally beginning to experience stock splits more periodically so I think it is time for me to share my secret weapon – CHICKEN BULL PUT SPREADS!
I have been known to get as much as $2.75 in a Bull Put Spread the day before expiration date! That is almost unheard of... but let me share with you my CHICKEN BULL PUT SPREADS.
- CHICKEN refers to me doing it at the last minute, so my obligation is only one day. Meaning I do the BULL PUT SPREAD (BUPS) the day before expiration date.
- BULL means I am expecting the stock to go up.
- PUT means I am using put options
- SPREAD refers to doing both buying and selling the puts, and in this case it is a vertical spread where the expiration dates are the same. I use the front month expiration date so that the obligation is short.
What I do to be more conservative, remember CHICKEN as I am, is I will look for the support line of the stock. Once I know what that price is, I will then sell a put with a strike price below the support line price. Then I will buy puts one strike price lower than the puts I sold.
Here is an example of a BUPS I just did on EBAY, which is splitting at the end of this month. This is not exactly my best credit spread, and it is not as chicken since I am obligated for several days on this one...but it is a real one I found yesterday, which will give you a good example of what strike prices to do. The money is still sweet here anyway, even though it is less chicken than my normal BUPS.
Looking at the following chart you can see eBay has an uptrending support line above $100 around $101.
Based on this chart, I will sell the $100 puts which is a strike price LOWER than SUPPORT. The 100 level is marked by a dashed line on the above chart. Remember selling puts means you agree to buy the stock at the strike price you have chosen (or someone can "put" you the stock at this price).
If the stock is trading at $101.50 there is little chance you will be forced (obligated) to buy the stock at your strike price of $100 when they can sell it at market for more. They will not want to exercise their right to sell the stock to you for $100 when they can sell it at market for $101.50!
To avoid being naked on your puts, you will buy an insurance policy by purchasing a put that is one strike price lower than the strike price you sold. In this case if you sold the $100 puts you would buy the $95 puts.
To be safe buy your puts first. Technically you will not be naked if you sold puts first and buy puts before the market closes, but some firms will fight with you and say you had a margin requirement during the day!
Now with the pending stock split, the stock is motivated to run up! If the stock stays above $100 on expiration date you just get to keep the money!
In my case I sold the 100 puts for $0.50 and bought puts the 95 puts for $.10 so I had a net credit in my account of $0.40. Now for those of you who haven't been through my classes and workshops,40 cents may not seem like a lot of money. If so, sign up for my free trading classrooms right away! In this trade I did 20 contracts, so if the stock stays above $100 I get to keep $800.00 for 3-1/2 days of trading!
Of course, this isn't a recommendation to jump into this strategy. You first must learn and fully understand it! Never do a BUPS unless you know how to unwind one, in case the trade goes wrong! To unwind, if the stock appears to be falling, buy back the puts you sold for a cost…and then let the puts you bought make money for you as the stock falls!
What a sweet deal, first you are cheering the stock goes up...and if it does not, you unwind the upper leg and bet on it falling!
For a more detailed report on CHICKEN BULL PUT SPREADS check my site in the future for the new report coming soon!
I hope to see you at one of my live classes soon - find out why I am hailed the "BEST COVERED CALL WRITER IN AMERICA"! It is time to put the profits in your account, as I share every secret I know in my two day class called LIFESTYLE TRADING WITH LEAPS coming soon to a major city near you. Don't let the word LEAPS fool you, everything I teach can be done on stocks, but I can't promise you will ever want to trade stocks again after taking my class!!!
Happy Trading!
Darlene Nelson