Hey, I don’t always plug my free twice-weekly webinars, but you’ll want to come to this one… Tuesday! You will HAVE to SEE this trade to believe it.
In this post: a trade that is truly unique and you have likely never seen anything like it before. Also, in tomorrow’s webinar… the unveiling of a seriously amazing offer for folks that have been considering picking up The Blueprint or RadioActive Trading Home Study Kit.
So, what would you say if I told you that you could do a spread trade with ZERO risk…
…that later that trade might capture even more premium…
…and that you OPEN it at a credit and potentially CLOSE it at another credit?
Would you think that was a purty awesome arrangement?
Well, I think so too. That’s why I would like to invite you to Tuesday’s groundbreaking webinar to see the details of the management of this trade. RIGHT NOW I’ll give you some of the particulars:
On November 10, 2011 my FUSION Members got to see me record this RadioActive Profit Machine. I’m adjusting numbers for a stock split that has happened since:
| Bought shares of ROST | $43.90 | |
| BTO May 2012 90 Put | +$4.55 | |
| Total Investment | $48.45 | |
| Guaranteed Return | -$45.00 | |
| Total amount AT RISK | $3.45 | or 7.1% |
Now, the RadioActive Profit Machine setup is scalable. Rather than picking up 100 shares and 1 put for example, my play was with 400 shares and 4 puts. But the ‘bottom line’ is still this: there is no more than 7.1% of the underlying issue AT RISK, no matter what happens to the underlying stock.
Okay, so here’s what happens next… On December 2, the $45 calls were asking $1.80, while the $46.25s were bidding at .93 cents.
I sold to open eight December $46.25 calls, while using some of the proceeds to buy four December $45 calls. There was a small net credit of .06 cents per 1:2 spread at the open of this play on December 2. That’s what happened at the beginning of this “Money Net” Income Method: I was PAID to do the spread. Not much, but something’s better than nothing. This was a 4:8 Ratio Call Spread, a play that NORMALLY imposes infinite risk. That’s because four of the eight short calls are ‘naked’… if the stock goes up, I could get hurt… BADLY (gulp)!
That is… except for the fact that I have 400 shares of the stock on hand. Which makes all that risk go away. Whew! Cool… so, what happened next?.
By December 16, ROST had gone up dramatically. It closed on Friday at $47, up over 7% from where I got in at $43.90.
The $46.25 calls were asking .84 cents toward the end of the day. My Fusion Subscribers got an email saying, buy to close four calls at .84 cents.
Now, that seems like a debit, doesn’t it? After all, the .06 cents received on the front end don’t make up for the .84 cents I had to spend to hold on to the stock…
But, WAIT! Remember I said I bought four $45 calls, sold eight $46.25s… at a net credit of .06 cents. Now, I’m only closing four calls, spending the .84… WHAT does that LEAVE in PLACE?
Why, it leaves four long $45 calls and four short $46.25 calls. Four Bull Call Spreads. And, incidentally, they are the VERY BEST Bull Call Spreads I could ever have been paid to own (!) because with ROST at $47, they are definitely paying out their maximum amount!
In the middle of the night, “automatic exercise” happens; the online broker sees ROST at $47, and I’m holding four calls, granting me the right to buy at $45. “Automatic exercise” is also in effect, obligating me to deliver 400 shares at $46.25.
So… I get PAID the difference of $1.25 per share… a total of $500 (in the middle of the night)… without having to do anything. Cool, yeah?
Oh… and I’m still holding ROST shares which are up 7% from where I bought in.
Now, .06 cents IN, .84 cents OUT, followed by $1.25 IN equals a net .47 cent credit I get to keep. MAYbe that doesn’t seem exciting to you, but here’s the kicker: I’m getting PAID this .47 cents (about 1% for two weeks) to SIT on a stock that’s GOING UP. 7% so far. Nothing like being paid while you wait.
If I had sold a plain-vanilla covered call, I might have had to PAY OUT to hold onto this stock, but in this case got a substantial credit.
Welcome to the “Money Net”, one of several zero-risk ‘nested spread trades’ that I teach for fun and profit.
Now, if you liked how the ROST play turned out, you’ll LOVE how my play with V (Visa) ended up.
Come at 12:00 noon Tuesday to see that and a few other no-risk trades, as well as a special year-end offer on The Blueprint and the RadioActive Trading Home Study Kit.
Happy Trading,
Kurt
I'm Kurt Frankenberg, and I have discovered how to truly put the odds on the side on the individual investor.
Kurt, I think I understand your method to a certain extent, I am confused about one thing though,
you state that a spread should be opened only about the put price or very rarely at least above the stock price.
In above example
Bought shares of ROST $43.90
BTO May 2012 90 Put +$4.55
Total Investment $48.45
Guaranteed Return -$45.00
Total amount AT RISK $3.45 or 7.1%
If ROST had gone down to lets say $42 in two weeks time,
since I already have the stock and the put, why is it not a good idea to do a bull or bear call spread even when the stock is below my buy price?
If the stock stays flat I reduce my AT RISK amount, if it starts going up I reposition my bull or bear spread and I am still ahead.
I might not win on the stock but I can at least get out of the trade with less than initial 7.1% at risk.
am I missing something?