So, I mentioned that I’d give you an update on Steve S.’ SBUX plays after July expiration.
And here we are.
In a former post, I showed how RadioActive Trading coaching client Steve S. had managed to ‘bulletproof’ his SBUX stock… and effectively get PAID to do it. He had 1600 shares of SBUX at a cost basis of $12.50. I showed him how to build a protective fence around his position by buying put options, then using the RadioActive Trading “Income Methods” to pay for those puts.
So far we’re both pretty pleased. When I last wrote about Steve’s position, he had effectively been PAID to own 16 Jan $50 put options, so a simplified version looks like this:
No cost basis for the $50 put… it has been paid for.
Steve’s use of the Income Methods had reduced the cost basis of his stock down to $11.81, and completely paid for his October $50 put options.
Now, a couple of things have happened since I wrote you last. ONE thing that’s happened is that Steve and I cooked up a little play that I call Income Method #11. I can’t spill all the details here but here are the vitals: this (somewhat) complex spread trade was opened at a small premium on 6/4/2012.
There were 32 long calls and 32 short calls in the spread, which was arranged in such a way that Steven COULD NOT LOSE. The Expectation was neutral; neither Steve nor I thought that SBUX was headed anywhere special soon. But if we were wrong, there were two possibilities:
- SBUX stock could head down. In this case, it would be possible to close the Income Method #11 spread, whose expiration was in July 2012, and keep the credit of $544 that had already been received.
- SBUX could blow waaaay to the upside, in which case the short calls could be satisfied with the sale of his stock, and the long calls could be cashed in for credit.
In other words, there was no capital risk imposed by this spread, because it was done in the context of stock ownership.
Soooo… guess what? The Income Method #11 play ended up performing according to Expectation. SBUX didn’t go anywhere special. And this monster with 64 legs 😉 ended up getting CLOSED on July 10, 2012… for a credit again.
Interesting? Uh, YEAH… who ever heard of a spread trade that has zero capital risk… is opened at a credit… then is closed at a credit also?
Heh… that’s how we roll around here 😎
Steve opened the spread trade at a credit of about $544 real dollars, and closed it at about $1,392 real buckarooonies. Dang, even after commissions, that $1.21 per share income sure beats hell out of dividends. Now, I know it may be frustrating to get only the outcome and not the nitty-gritty on this spread, so I’ll give ya the next two things that Steve and I worked out to do next.
Having received enough premium from playing the Income Methods to more than pay for his October $50 put options, Steve looked at SBUX and decided he wanted to protect it for just a little while longer. So he sold his October $50 puts and bought the Jan 2013 $57.50 puts like so:
With SBUX at $53.60 on July 13, Income Method #4 looked ripe.
Keep in mind that, while Steve had been able to sell his October puts for $1.83, they actually had no cost basis. They had already been paid for by using other Income Methods.
So this put roll, done while SBUX was at $53.60, ‘cost’ $5.07 to add not only $7.50 to his bottom line exit, but also three months of continued protection under the umbrella of that put option.
Nothing like a bop down to pick up income from the put…
Next up: Steve then saw SBUX take a tumble. His expectation is again that SBUX will stay range-bound for another spell.
So his play last Friday, July 20 was to use Income Method #9 to roll down the puts. He picked up $1.63 credit for doing that.
About now you might be saying, “Wait. SO you PAID ($5.07 – $1.63) = $3.44 to be protected with this stock. It looks like money going out, again.” Well, okay. Fair enough. But let’s not forget that with SBUX at $50.12 right now (15:45 Eastern Time, July 24, 2012), plus $3.44 is still shy of the $55 that this RadioActive Profit Machine is GUARANTEED to be valued at for the next six months.
If SBUX goes nowhere but south over the next six months, Steve will certainly have his $3.44 worth back. And if SBUX goes up, he will be able to use IM#4 again to ‘roll’ up his exit even higher. Sideways moves? No worries. We have that covered with Income Method #11… which, last time we applied captured $1.21 per share without putting a cent of Steve’s capital AT RISK.
Gotta love it.
Questions? Comments? Wanna lambaste me for recommending the purchase of put options to stay out of trouble with your stock investments? Leave it below. Oh, and if you want details on how to get Income Method #11 for your very own… a spread trade that can pay you TWICE but which adds no risk when done correctly in the context of owning stock… write me at kurt at radioactivetrading dot com.
Other Income Method and Bulletproofing Resources
Hey, didja dig this post? 😉 Make sure and share the love by commenting, liking, sharing it with a friend. And if you’re hot on these ideas of ‘nested spread trades’, ‘Income Methods’, and ‘Bulletproofing’… here’s is a short list of other free educational resources sponsored by RadioActive Trading:
Double Dippin’… Taking Even More Premium Than Covered Calls
Catching Premium Better Than Covered Calls: The “Money Net”, Part Deux
This Simple Trick Made My Stock BULLETPROOF
Options Trading Wisdom From The Art of War
Bulletproof THIS, Part Deux
Bulletproofing a Married Put Trade
Revolutionary “NEW” Technique Turns Your Trading Right-Side-Up
A Married Put Beats a Covered Call THREE Ways
YouTube:
http://www.youtube.com/watch?v=5yDIR4t0rjc&list=UUPvzT0P7mUh6IifL6NT3IEw&index=33
http://www.youtube.com/watch?v=m1Y3MnrS3Bs&list=UUPvzT0P7mUh6IifL6NT3IEw&index=1
For Free Options Trading Educational Webinars Every Tuesday and Thursday, Register HERE
For a free two-week subscription (no CC needed) to the PowerOptions “Search and Destroy” Platform for finding, managing, and BULETPROOFING these kinds of trades, Register HERE.
Happy Trading!
Kurt
I'm Kurt Frankenberg, and I have discovered how to truly put the odds on the side on the individual investor.
Are you telling me he got SBUX for 12.50 ? When was this 2009 ?
He made all that profit without without being bulletproof ?
Hiya, Mike. Yes, this was stock that Steve already had, that he wanted to ‘build a fence around’ using options. He was in a conundrum: “SBUX is up… do I sell now and lock in profits (and take the capital gains hit) or do I hold and potentially watch the gains go away?” I taught him not to limit his choices to simply sell or hold. I showed him how he might buy put options to absolutely protect gains that he had made to this point, and perhaps pay for those put options (and THEN some) by using combinations of the eleven RadioActive Trading Income Methods. So far he’s very glad he got The Blueprint 😉
HT,
K
I am interested to learn about income method 11. I already have your Blue print with 10 income methods.
Picking direction accurately seems very difficult. I would like to learn good strategy to bullet proof if stocks start to move against me rapidly which happening frequently in currency trading with your strategy of Married PUT. Limit the loss is very good but bullet proofing will be even better.
Rimo, since you are a Blueprint owner of record, you’ll get Income Method #11. The reason that The Blueprint is delivered in a three-ring binder is so I can send you addendums and you may print them out at home and insert them. This case study is going to conclude at August expiry and you’ll receive an email with a link to download the PDF.
By the way, Income Method #11 is set up to milk the market for premium regardless of direction. It’s most effective when the market moves sideways or only slightly up, but may take two credits even if the market goes down.
HT,
K
Can you give me some idea of your expectations in terms of annual returns or even better what returns you have been able to achieve over the years.
Otherwise it’s all great, I just haven’t sat down recently and devoted any time to your approach. I need to but have been busy with other things.
Jeff, I avoid making promises about things I can’t possibly control. In an industry where the ‘gurus’ cherry-pick and show their best returns, I actually rather call attention to my losses! That IS something I can control.
So instead of making the outlandish claim that my strategy makes 6% per month, as the top covered call selling guru does (without complete and current documentation), I would rather show how my long trades lost almost 4% from July-November 2008, or how an opening gap of over 30% only hurt my trade to the tune of 2.3%.
Making gains is easy… you just have to be lucky. No joke, I don’t take credit for any of my big wins because I know it’s luck.
(jaw drop)
Here’s the deal. I’ve made 40%+, three-month gains a number of times… my colleague Mike Chupka reeled in a massive 59.8% gain in five months… but it’s not the gains that matter. It’s actually having the capital to make those gains by -get this- NOT HAVING BIG LOSSES. And since controlling losses down to single digit percents is my message, that’s the only thing I focus on.
A properly structured RadioActive Trade is set up from the beginning to have potential to win, but it cannot lose more than 5-6% of the capital that you are playing, or 1% of your total portfolio. From this place, it’s still possible to have big winners, I just can’t guarantee them and neither can anyone I’ve met. BUT..! I CAN guarantee that if the market goes against, it’s not cry-in-your-milk time, just regroup, re-evaluate, reset.
Thanks for the Q, Jeff!
HT,
K
Hi Kurt, just saw your video on YouTube. Little bit confused. I thought the setup used with the married put, adding on call spreads, etc. was supposed to get the trade to zero risk with unlimited upside potential, but some of your trades have been down on the stock side 30% or more. No disrespect here. Very interested in the program. Just wondering why you incurred losses if covered by the methods shown on the video? And could you have exited your positions sooner with a smaller loss? Thanks.
Hi Andrea! Not sure which video you saw or what stocks you have seen down that far in our examples. There have been a few trades over the years where Kurt tried “something new” or tried to test some new Income Method to see what would happen. Some of those instances have seen the stock fall way down and we may continue to track it just for posterity. Not sure if you’ve seen the track record that we publish on radioactivetrading.com – but the CREE position that was opened on 8/3/2010 at almost $74 per share is such an example. We didn’t follow the method that we teach in The Blueprint in an attempt to learn something new. And gosh did we learn!! The stock is less than half of our open price now. Luckily, this is a paper trade so the lesson was only egg on our faces for the public track record and not real cash. TO YOUR POINT… YES!! The methods we teach keep the position out of major trouble like that. Or at least they warn you when you might be increasing the amount ‘at risk’ in a trade – so you know the worst case scenario before you make the position adjustment.
Thanks for the Q! Hope I’ve sufficiently answered. If you have further Q’s, just come to one of our LIVE Webinars or shoot us an email.
Hi Kurt, Where did you get the cost basis of $12.50 in your opening statement.
And Should the BTC be BTO Jan55 Puts for -$6.13
Enjoy your work
Karl, thanks for catching that. Yes, it should be BTO Buy to OPEN, not BTC Buy to Close. I’ll get that change made later today. For your answer to cost basis please see my reply to Mike. My client Steve had shares of SBUX that he wanted to build a fence around using options. He had SBUX at a low cost basis and wanted to have an ‘insurance policy’, but not necessarily pay for it. I showed him a way to get ‘bulletproof’ and take much more income than dividends alone would be. He’s still a holder, but now intensely enjoying the ups and downs of the stock rather than being a spectator 🙂
HT,
K
Hello Kurt:
I am an owner of the blueprint.
Is it possible to get income method #11?
I have been happy to protect some of my stock with buying puts and selling calls to recover the cost also. It’s a sound method of preserving capital.
Would be good if I could spend more time at it.
Priorities, priorities! Right?
Thank you.
Ron, see my reply to James, below. As an owner of The Blueprint you will get updated.
HT,
K
Hi Kurt,
By chance could you add Income Method #11 to the Products Page at radioactivetrading.com?
James, Income Method #11 will be made available for free to owners of The Blueprint. The Blueprint is delivered in a three-ring binder so that additions can be made available this way. If you are an owner of record, look for your PDF update… if not, go to http://www.radioactivetrading.com and hit the “Products” tab.
HT,
K
Kurt, I emailed you last week regarding IM #11 but I have not heard back from you on how to get it. I have bought the RA Book in the past. Thanks!
To Ryan and everyone looking for the new Income Method #11: FREE WEBINAR for Blueprint Owners only coming up August 23rd. You’ll get an email invite.
Happy Trading!
Kurt
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