Take a penny & buy protection
Traders,
The naked put strategy is a favorite for many traders. It carries a high probability of profit and adds positive theta to your portfolio. Check out the video on it in the Tackle Trading Playbook if you’re in need of a refresher.
If there’s a drawback, it’s the cost. If you’re using a margin account, it may not matter much, but the margin required for those wielding retirement accounts is equal to the max loss. And that can be a lot. As a result, your return on investment is tiny.
Here’s a trick you can use to juice the return. I use this anytime I need to free up capital in my IRA accounts. Turn the naked put into a bull put spread by purchasing a further OTM put.
But instead of buying one or two strikes below your short put, buy way OTM. Find a put that’s maybe only a penny or two. You won’t be sacrificing hardly any of your potential profit, but you’ll drastically reduce the cost.
Let’s say you want to sell the Aug $51 put on EEM for 50 cents. In a retirement account, you’d have to put up $5,050 as collateral for the trade.
But, if you went far OTM and purchased the Aug $36 put for a penny, it would turn the trade into an Aug $51/$36 bull put spread for 49 cents credit. The potential reward is virtually identical ($49 vs. $50), but the cost shrinks from $5,050 to $1,451.
#TeamTackle
Chart of the Day
Bitcoin Go Boom
Bitcoin prices were rocketing higher Sunday night, taking the digital currency back above all major moving averages for the first time since May’s plunge. Significantly, it also breached critical short-term resistance at $36,000. Is this the awakening bitcoin bulls have been hoping for? |
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Video of the day
Coach Frank’s Charts
When Coach Frank starts talking Chart Patterns #TeamTackle always leans in and this week is no different, watch this clip from Friday’s Halftime Report where the coaches analyze Frank’s charts and discuss their potential trading setups.
Today’s line up
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