Our Strategy
Our newsletter/advisory focuses on creating income through selling put options on high quality stocks. Our goal is never to own the shares of the stock that we are selling puts on but rather capture the premium and close the option early or let it expire worthless overtime. So how do we find prime candidates for selling puts?
Insider Buying – Large purchases from insiders can signify undervaluation and possible future bullish price movement
Seasonality – Certain stocks have strong seasonal patterns that repeat themselves year after year
Overreaction – High quality stocks are oftentimes impacted by overall market dips although they’re business or fundamentals do not change
After finding an ideal stock for selling a put option we must analyze the option chains in order to increase our chances of success and maximize returns. Here are a few things we analyze regarding the option chains:
Liquidity – Some stocks have very low option liquidity and the bid/ask prices for the put options specifically can have a very large spread. Put options we recommend selling must have high liquidity which allows our subscribers to actually enter/exit the trade at the prices we recommend. There must be a significant supply and demand for all options we recommend.
Downside Protection – Also known as percent “out the money” meaning how far the stock price would have to dip before we would be assigned shares of the stock. We obviously want the protection to the downside as high as possible when entering the trade although it will vary greatly depending on the market and stock volatility
Annual Return if Held to Expiration – We are always aiming to achieve annual returns of at least 12% if we were to hold the put option to expiration. You will see from our closed trades that we usually achieve a much higher rate of return due to closing the position early. As time passes and the put option value decreases we can close early and increase our annualized return percentage.