Three Winners In Three Months

Let's continue to do what is working. It is a simple idea that applies to most things in life including trading and investing. We can use a working trading strategy over and over again until something changes. This is how the best traders and investors evolve and improve over time.

It is time to revisit social media firm Twitter (TWTR) so far you could have sold puts for income in June, July, and August. All three trades expired worthless for a 100% success rate.

Review why I like Twitter: https://steempeak.com/@slider2990/option-income-twtr

With less volatilte stocks we can sell puts near the current share price, however with something like Twitter it is best to use deep out of the money put options for added margin of safety.

For example, if a stock trades at $25.05 and you sell a put with a $25 strike price, you may have to buy shares if the stock falls $0.05. This $25 put is just $0.05 out of the money. If you sell a put with a $22 strike price, though, you would only have to buy shares if the stock falls at least $3.05. This $22 put is far ($3.05) out of the money.

On Twitter we have been able to earn good income on a great business selling a deep out of the money put option.

In June, with the stock price very suppressed from pessimism, the recommended puts were about 2% out of the money. In July, earnings season increase the volatility metrics allowing the recommendation of puts that were 11% out of the money. And in August, the stock volatility remained elevated allowing for puts that were 12% out of the money.

The stocks pullback from recent highs provides a great opportunity to collect more income with deep out of the money puts.

Trade details:

Sell to open, the November 15, 2019, $38 puts on Twitter for $1 using a limit order for a 2.6% upfront payment and agreeing to buy shares at a 12.4% discount to yesterdays closing price of $43.38.

At expiration if shares are above $38: put sellers will keep the $1 which is an 18.5% annualized return.

At expiration if shares are below $38: put sellers will buy shares at $38 and have the opportunity to sell covered calls for more income.

Use a stop loss at $34 which is 21% decline from yesterdays closing price. This big unlikely drop will leave shares trading at new recent lows below the 200 DMA (day moving average). It is best to exit for a small loss.

Collect more income on this great business and go 4 for 4.

Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.