Coaching Client Steve S… Making Star-BUCKS!!

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:

  1. 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.
  2. 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


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!


About Kurt Frankenberg

Kurt Frankenberg is an author and speaker about entrepreneurship, martial arts, and trading the stock and options markets. One of several "Biznesses" he founded as a teen, The Freedom School of Martial Arts, has been in continuous operation since 1986. Kurt lives in Colorado Springs with his wife Sabrina, German Shepherd Jovi, and his ninja cat Tabi.