Thursday, April 13, 2017

Option Trade - Trade Closing.

    Last month., Home Capital Group Inc. fired their CEO over night.  The stock price fell after markets opened the following morning.  I decided to sell put options. These 2 put option contracts had a strike price of $25.00 and an April 21 2017 expiration date.

    The stock rallied upwards for a bit, but has fallen.  The issues surrounding this company are causing investors to back off from buying and sellers getting worried about their investment.  Today the stock closed at $21.70 per share, which is an 8.63% decline from yesterday's closing price. 

   Earlier in the day when I was able to be at my computer, I closed my trade by putting in a Buy to Close order.  My order was filled at $2.35 per contract.  The stock was trading  at $22.80 per share when my order was filled.  So how much money did I lose on this trade?

 Summary:

# of contract = 2
Premium Received = $128.05 including commissions
Premium Paid = $481.95 including commissions

Total Loss = $481.95 - $128.05
                  = $353.90


       The lesson to learn here is when you sell a put for option premium income, buy a put option of lesser premium as insurance. Basically, your protecting yourself  if the trade goes against you which means the option was assigned. This will lower your net premium received, but will limit your loss.

      If an investor is willing to buy the stock at the strike price and wants to keep the stock as a long term hold, then buying a put option as insurance would be a matter of choice. 


DISCLAIMER
I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

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