So the world is watching: I don’t know if GILD is going to go up, down, or sideways.
Plus, I don’t care.
🙂
Quick story, showing how GILD was “bulletproofed” in 20 days,
meaning that the stock’s moves after 9/20 may spell even MORE profit…
…but GILD can no longer lose.
***
ON August 31 I published a post for you featuring GILD.
In that post, the preposterous claim that a $100 premium could be collected, with zero risk, by doing a bear call spread.
ON September 16 I added a SlideShare presentation as well. G’head… download the slides if you like 😎
These posts and SlideShares have had their share of controversy of late.
The term, “riskless spread trade” has been bandied about.
The ridiculous claim, “I can collect $100 on a bear call spread and NOT fear reprisal if the stock goes up” was made.
Insanity.
Oh, and absolutely true.
See… riskless spread trading is all about understanding context.
A bear call spread’s “risk” comes from the obligation to deliver shares that you don’t own.
But… what if you DO own the shares?
Then it’s a different story.
Doing a bear call spread in the context of owning the stock can not only allow you to grab premium… but it ALSO gives the ability to leave your stock open to further growth while you’re waiting.
Cool.
Bulletproof. Better nights of sleep, while your investments grow under protection
Let’s walk through the stages of this story that’s been unfolding as YOU, my loyal and good-looking fans have been watching.
- August 31: a “RadioActive Profit Machine” is formed by adding a November $77.50 put to stock
- (Shares at $75.70 held from earlier are insured with a $77.50 put that costs $3.80 to open)
- August 31, again: a $77.50/$80.00 “Bear Call Spread” play captures $100.
- (The short leg bids for $2.10, while the long leg asks at $1.10… $100 premium collected)
- September 20: GILD goes to $81.50, waaay past the short call’s strike
- (A SECOND November $77.50 put is purchased at only $1.97)
- September 30: Wait, WHAAAT? Today is September 28! How could anyone possibly know what’s gonna happen?
- September 30: we will be able to close this play with a profit, whether the stock goes up, down, or sideways. Guaranteed.
Now, I get it… it’s really hard to look at these ^ facts that have already occurred, and conclude that not only was the bear call spread riskless…
…but now, the stock is riskless too…
… if ya wanna go check out a quickie 15-slide SlideShare you’ll see the visual.
Kinda cool, if ya ask me.Because we’re looking at a September worst case scenario of $119 profit… but in all likelihood it will be more.
The combined chart that includes the bear call spread, the “context trade”, and the 9/20 adjustment now shows a kind of “Smiley Face” trade.
Bulletproof position… Worst case occurs when the stock price is $80. Bigger profits follow up OR down
Using options as a kind of fence… to prevent the stock’s roller coaster moves to up cost us money… we’ve now got a situation  of “heads we win, tails we win bigger.”
NICE.
Have you wondered how to do a credit spread with zero capital risk…
…wondered how to play spreads without the fear of getting your behind handed to you…
…and enhance your stock holdings with on-demand income plays that DON’T pose the threats of plain-vanilla “covered calls” trading…
…then it just might be time for you to click this here linky-poo.
Live demonstrations as the market unfolds is impressive. But how much more impressive is it to use your OWN account in a way that limits risk… even eliminates risk in the right conditions and trading rules… and come out smelling like a rose in your accounts regardless of what the election and the markets hand you?
Click here to get your recorded class “Stop LOSING at Spread Trades FOREVER“.
Okay then… til Friday when when it’s revealed just how much premium was captured in these plays, without adding to the capital risk…
Happy Trading!
Kurt
DISCLAIMER:Â This post is not a recommendation to buy, sell, or hold shares or options on GILD. The information on options trading strategies is presented for education purposes only. The reader assumes all risk and responsibility for making his or her own trading decisions.
I'm Kurt Frankenberg, and I have discovered how to truly put the odds on the side on the individual investor.
Interesting, but I think the slide-show claims GILD was acquiredfor $75.70 on 8/31/2016.
Yahoo Historical prices show GILD on 8/31 with Low=77.11. In fact, Yahoo Historical Prices NEVER show GILD under 76 for all of 2016.
What am I missing here?
Previous trades that reduced the cost basis. Thanks for asking!
Happy Trading,
Kurt
Ah … I see these shares were Held over from a previous Acquisition at 75.70.
But in that case, am I right to think this only works for a share that has ALREADY appreciated?
if you were to buy GILD on 8/31 with the same put as a “married put”, and then add the Spread would this still work?
Hiya Mike!
Yes, it’s not only possible… it’s commonplace. Traders on http://www.radioactivetrading.com are often able to start with a stock plus long-term put, then take away all risk. We call it bulletproofing and it’s helpful to have The Blueprint and twelve “Income Methods” to navigate the journey.
Happy Trading,
Kurt
If your cost is 8047 and your guarantee is 7750 wouldn’t that still have risk of 297