Put Option on UAL

Type: naked short put
Margin requirement (as of 8/12/2014): $456.50
(While this is technically a naked trade, I have the available funds if I were to be assigned.)

08/12/14 STO 1 UAL Sep26 2014 37.5 Put @ 0.74
Comm = 1.54
Credit: $0.74

This trade could turn out a few ways:

Max Profit $74 – $1.54 = $72.46 Max profit occurs if UAL is greater than 37.5 on expiration day, which is September 26. Max Profit = Net Premium Received – Commissions Paid
Max Loss $3750 + $1.54 – $72.46 = $3679.08 Max loss occurs if UAL goes bankrupt before expiration day, which is September 26. Max loss = stock drops to $0
Breakeven Point $0 Breakeven point occurs at 36.76. Breakeven Point = Strike Price of Short Put – Net Premium Received
Possibly Assigned Shares varies At any point when the stock is trading for less than 37.5 I could be assigned 100 shares at $37.50/share.

As always, I will look to manage this trade for at least a 50% profit ($37). Management might involve rolling for credit to extend duration and/or lower strike price. The ultimate goal in that situation is to increase net credit in order to reduce cost basis if I should be assigned.

Update (8/15/2014): Wow! Not even a full three days have passed and I was able to manage this trade for a greater than 50% winner. I’m being mechanical and frequently trading small amounts of money with high-ish probabilities. This means taking profits when at 50% or more and then reallocating the freed up funds elsewhere. In the case of UAL, I was able to buy the put back for 0.36, locking in a profit of $34.93 (or 47.2%) after commissions.

This really shows the power of selling premium. To make $34.93 in dividends (at 3% yield) would require $1164 and take a full year! To make that much in a quarter would require $4657. In contrast, I only used $460 in buying power with this trade and am now able to use that money for additional put trades.

08/15/14 BTC 1 UAL Sep26 2014 37.5 Put @ 0.36
Commission: $1.53

Profit/Loss: $34.93

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