December Bull Put Spreads

I haven't really talked a lot about spreads, but here are what looks to be some good BUPS that I'm doing practice trades on:


BUPS for Dec Only:


5 AAPL 180/175 for $0.77, stop @ 180.25 ---> $2115 on hold, 18%
5 FSLR 230/220 for $0.95, stop @ 232.00 ---> $4525 on hold, 10.5%
2 GRMN 95/90 for $1.10, stop @ 95.50 ---> $780 on hold, 28%
2 MA 200/195 for $0.70, stop @ 201 ---> $860 on hold, 16%
5 SPWR 120/115 for $0.65, stop @ 121 ---> $2175 on hold, 15%
5 CME 680/670 for $1.05, stop @ 680.50 ---> $4475 on hold, 11.7%
1 GOOG 670/660 for $1.70, stop @ 671 ---> $830 on hold, 20.5%


Total CREDIT = $2240

AMOUNT ON HOLD = $15,760

ROI = 14% (Wed - Fri, 3 days)


All these were entered in today a little after 1 hr into the market. The only reason for that is because I had to take the kids to school and get some things situated at home. Didn't go to bed until 2 am and I was a bit groggy when I got up at 6 am and spent the time with my daughter, who was also up early.


Otherwise, I probably would've gotten filled with better credits than what I did. Still 14% ROI in just 3 trading days for spreads is awesome.


Note that for those who do not realize this, Bull Put Spreads (BUPS) are for a bullish play. As of the writing of this, the market ($SPX) has been both bullish and bearish today, a little over 2 hrs into the market. What is it going to do? I have no idea.


The stops I have for getting out of my positions are to BUY BACK the side I sold and let the side that is bought run. That stop has been placed as contingencies in all my trades and I will after this entry go in and put a trailing stop for the side that was originally bought that I will look to sell, if my spread does not workout.


For those who do not understand, let me quickly explain.




Here is the chart on FSLR.

In a BUPS, here you would want the stock to stay ABOVE $230. As long as it stays above that to expiration (the third Saturday of the month), you get to keep the credit, which in this case is $0.95/share. I bought 5 contracts = 500 shares, so this would be a credit of $475.

How a credit is determined is when you SELL, you take in money. When you BUY, you spend money.

SELL Dec 230 Puts = +$1.45

BUY Dec 220 Puts = - $0.50

=====================

CREDIT = +$0.95

In either a Bull Put Spread (BUPS) or Bear Call Spread (BCS), the point at where you do NOT want the stock to cross, that is the side you SELL and the other side you BUY. A BCS is the opposite of a BUPS. You want to use this when the stock looks Bearish.

So what happens IF the stock does drop down below $230?

There are at least 2 things you could do here:

Method 1:

You will have to BUY back your Dec 230 Put position. Right now, it would cost me $1.55 to buy the position back. Yes, buying it back costs more in this case than selling it. It would've cost me $0.10. If the stock drops to where I am to get out, that will cost me even more.

Then, I would let the other side, the Dec 220 Put position run. Of course, you have to get out of the position by the end of Friday because these are December options, so remember that. In order to break even, you will have to add the cost of the difference of the Dec230 Put Sell & Buy back, plus the cost of the Dec 220 Put. Anything above that is profit.

Method 2:

You would close out the spread with 1 order where it simultaneously fills you for the buy back of the Dec 230 Put and the sell of the Dec 220 Put. This can be advantageous at times because the net cost to do this as a single transaction you usually get a better deal than if you did them separately.

When would I opt for this? If I just wanted to be done with the position and it's going against me and there is no time left for me to gain any money from it and it's just cutting my costs from further costing me more.

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2 Responses
  1. Debbie Davis Says:

    Congrats on your bull puts. Were they 100% profitable?


  2. Doris Says:

    Yes, all my BUPS were profitable. I actually had one more but forgot to post. PCU Dec 100/95 for 0.90. That was 22%.

    I did have one BCS that was not successful. It went against me today, but there was indications of it 2 hrs prior to close yesterday.

    So, for my spreads for the month of Dec, I had 8 successful BUPS, 1 unsuccessful BUPS (on RIMM that was done earlier that I did not put in my trading blog), and 1 unsuccessful BCS.


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