Options on Down Days

With the huge stock slide today it's time to review our options basics to take advantage of these opportunities. When the market makes a big move downward like this it is prime time for selling puts for larger than normal premiums and buying back OTM calls for pennies on the dollar.

I keep a list of stocks that belong in my portfolio and use these "fire sale" days like today to try and sell puts against these securities for more money than I would have gotten otherwise. The benefits are two fold; There is a chance the stock drops more and get the stock at a huge discount or the stock rises back to normal levels and the option expires worthless and I keep the larger than normal premium.

My conservative put sale order:
VE Jan $20 for 1.05, This is one I discussed in the last post as a key long term holding that you have to own and with this sale the worst that can happen is you own the stock for $19 which is a 20% discount from todays price and would make the yield 9%!!

My risky put sale order:
RINO Dec $7.50 for .85, Owning this stock for $6.70 would be great, but be careful what you wish for with these highly volitile Chinese stocks. If you don't have a fun, high risk/high reward, speculative stock this one is worth playing.

If you sold calls 500-700 dow points ago like I did then instead of waiting for them to expire you could buy them back and book the income now. This will help you put more of your buying power to work selling more options for more premiums. If you sold a call that expires more than a month or two in the future and you can buy it back for 10% or less of the premium you paid the prudent move is to do so.

My call closing order:
ONP Nov $15 at .05, This has been a good premium provider and was discussed in a previous post. Trying to close it out after selling for .95 premium leaving me a $90 per contract profit.