Is it Easier to Bulletproof with a Lower Risk?

What is Bulletproof?

‘Bulletproof‘ is where we take the Proper Protected Stock Trade, a RadioActive Profit Machine (RPM), and through use of the Income Methods lower that already low risk, and potentially cancel all of the risk to the downside.

No Risk Position!

What is the Proper Structure of an RPM?

Earlier this week we presented The Proper (Protected) Stock Trade. During that webinar we opened 2 NEW RadioActive Trades for our viewers and Fusion Subscribers. One of those trades was:

5 Line Setup:

  • Buy 100 shares of FN @ $64.33
  • Buy 1 JULY 70 Put @ $10.20
  • Total Invested = $74.53
  • Guaranteed Return = -$70.00
  • Maximum Risk = $4.53, or 6.1%

During the webinar, we also showed other combinations that might have been used. One of those was using a deeper In the Money put with a lower risk:

  • Buy 100 shares of FN @ $64.33
  • Buy 1 JULY 75 Put @ $13.90
  • Total Invested = $78.23
  • Guaranteed Return = -$75.00
  • Maximum Risk = $3.23, or 4.1%

In our follow up presentation, Is it Time for an Income Method, we discussed why I would not do an Income Method right away. This prompted a question from one of our attendees:

Jul 70:Stock is at $65.35  and Jul 70: Risk is 6.5%, max risk is 4.86 – So I can Bulletproof at 65.35 + 4.86
Jul 75: Stock is at $65.35  and Jul 75 Risk is 4.9%, max risk is 3.86– So I can Bulletproof at 65.35 + 3.86 Jul 75 gets me to Bulletproof easier!
What am I missing? Why is it harder to get to Bulletproof deeper in the Money

How Not to Use an Income Method

With the 70 put in place and a risk of around $4.53, we could have generated $1.65 by selling the JAN 65 call.  However, that increased the risk to over 10% – to the upside in the direction I thought the stock would go.

I had a cost basis of $74.53 – $72.88 after selling the call, but this would have obligated me to deliver stock at $65.  The risk to the upside was now about $8.00.  This is NOT the way to use this Income Method.

In general, the best time to use any of the Bullish income methods is if the stock is at or above the put strike price. Forcing an adjustment too soon can put you in a worse position. 

Although the risk on the 75 put is lower monetarily, I would need a larger move in the underlying before applying an income method. This is why I say it is harder to Bulletproof the deeper ITM put with the lower risk.  You likely end up waiting longer for the stock to hit the higher price, or you are forcing income methods that put you at a higher risk in the direction you thought the stock would move. 

Let’s say that FN reaches $69.00 at the end of December

Using the Black-Scholes calculator on PowerOptions, the expected price of the JAN 70 call would be around $2.00 with current IV.  This would cut my current risk almost in half. 

Risk is cut to 3.4% from 6.1%

If I owned the 75 strike, I would not sell the JAN 70 call as the risk would increase, to the upside, due to the call being sold below the put strike price, similar to what is shown in the previous example.  That goes against the rules of The Blueprint. I would not do it. 

Now, let’s say FN moves up and down but is trading at $69.50 at JAN exp., my call expires, I keep the premium. I can now sell the FEB 70 call for another $2 to $2.25.  I am essentially Bulletproof at this time. 

However, if I had purchased the higher 75 strike, with the lower risk of $3.85 or so, I would not have performed an income method yet as the risk to the upside would be too high.  I am still holding a risk of $3.86 on the position as no adjustments matched my CEGA model for the deeper In the Money trade. 

Is it Easier to Bulletproof with Lower Risk?

Although both trades match the guidelines in the Blueprint, taking the deeper ITM, lower risk position is harder to get Bulletproof as you need:

  • A larger move in the underlying stock
  • More time for the stock to reach the point where it is proper to apply one of the bullish income methods. 

That is why I said it was ‘Harder‘ to Bulletproof with the lower risk, deeper In the Money structure. True, if the stock gaps up to $73 or higher, I could likely Bulletproof the JUL 75 Put structure soon…

But that is not my Expectation for FN at this time – But I would love to see it happen with either structure!

Why You Need The Blueprint

This exercise only reinforces why investors NEED The Blueprint to apply this technique…

Not only does The Blueprint show the best structure to properly limit risk, it also:

  • Describes each of the 12 Income Methods in plain text. No insignificant jargon or confusing terms
  • Full description of when, and when NOT to use each Income Method
  • The CEGA model outlined for each Income Method – the decision making process for choosing one method over another
  • Warnings on the risks of Forcing each Income Method too soon
  • Full Chapter on Combining Income Methods
  • Full Chapter on Exiting the RPM
  • Many Examples and Profit and Loss Charts
  • Full Appendix of examples and MORE!

And Now is the Best Time to Get Your Blueprint!

During our Special End of Year Bonus Offer!

Click HERE to get your copy and take advantage of these Special Bonuses:

This Offer Ends December 31st at Midnight!

Make sure you click THIS LINK to get your Blueprint before the offer ends!

The best way to protect your stocks, Insure your Portfolio and BULLETPROOF your Trades!

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