In a world where almost everyone seeks to get rich quick I've always been of the mindset that it might be too risky to go that route. Since I started trading in 1978 I've adopted a more conservative get rich slow approach.
Regular readers of OptionsProfits have, no doubt, noticed the difference in my trading style compared with that of the other regular contributors. Most of the suggested trades here on OP involve short-term buys of options or options combinations that run from a few days to a couple of months out.
There is nothing wrong with any of that but I prefer to be on the sell side in my options trading to tilt the odds heavily in my favor. The 'raw material' I sell in my options business is 'time' and time costs me nothing in terms of dollars and cents.
Many subscribers have resisted the idea of writing options that stretch out six months, one year or even two years away. I realize that options traders like instant gratification. The typical options trader wants a quick resolution of profit or loss and to move on to the next trade.
My view is that it's easier and less stressful to initiate positions that can be left to mature over months, not days, and that allows me to lock in nice annualized returns for substantial periods of time. After 32 years of doing this I can attest that it really does work over the long term. It has made me financially independent and provides me with all I need to live very nicely.
Should you simply take me at my word concerning all this? No. Always verify before you accept claims of success even when they ring true. I am going to share with you the actual January 2011 profit and loss spreadsheet I keep for my own taxable accounts. I have three separate trading accounts where I transact the buys, sells and options writing that I speak about here. The P&L sheet is a composite of those so you will notice some duplicate trades that may have been done in more than one place or at varying points in time. Because I need to send in estimated taxes based on my projected earnings I have accelerated the closure of all my January 21, 2011 expiration options based on their expected results. Almost none of them are anywhere close to the strike prices so I have better than 90% certainty that what you are seeing is what will actually be reflected on January 22.
Among the few 'losing' trades are covered calls that I bought back in order to roll them up to higher strike prices. While the majority of trades are options, you will also see some closed-out stock sales due to call exercises this month. Note: My software lists options contracts as 'hundreds of shares' rather than the number of contracts. Thus a 10 contract lot shows as 1000 shares.
A few of the options coming due this month were sold as far back as late 2008. Most were written in 2009 and 2010. All the trades listed with ZERO cost basis are options that are likely to expire worthless in about two weeks. While no one trade brought in a huge amount of money as a group, the projected net profit looks to be $144,867.
I held all the proceeds from the option sales in my accounts from the first business day following each trade which built up the cash balance in my accounts. While I always keep some cash handy in case of puts being exercised, I also allow myself to use some of the excess cash build up to actually buy shares of stocks I find attractive. Then I later sell covered calls on those shares also. See the attachment for the full list of every trade I have coming up for expiration on January 21, 2011:
This month is especially good for a few different reasons. The market was very depressed in late 2008 through early 2009 making for a great time to sell puts. Of course, that was something most 'doom and gloomers' were unwilling to do back then with the next great depression waiting in the wings. Secondly, because I sell lots of LEAP options, January is an overweighted month every year for me since most long-term options come due only in January (a few are for December).
Please note, also, that the list from this month does not reflect all the options originally written for this month that I closed prior to expiration in order to free up capital.
Understanding and using options correctly can provide you with a lifetime income that is unavailable in any other way. If any of you live close to the Philadelphia area, I would be happy to spend some time with you to show you all the supporting details and to teach you some of the tricks of the trade that may not come across as easily simply by reading my articles and watching my videos.
I welcome any questions or comments from our subscribers.
Happy New Year to all.
Dr. Paul Price for OptionsProfits
At the time of publication, Paul Price held positions as per the embedded P&L statement in this article.
Dr. Price joined Merrill Lynch in 1987 and over the next 13 years worked with A.G. Edwards, Wheat First and Ferris, Baker Watts. Dr. Price enjoyed enough success to retire in October 2000, but he continues to write and give investment seminars.
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