Option Basics, Session V: Cash-secured puts Guest speaker: Dan Sheridan Sheridan Options Mentoring
Disclaimers Options involve risks and are not suitable for all investors. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options, sent to you in previous communication. Additional copies may be obtained by calling TRADEKING at (877) 495-KING visiting www.tradeking.com/odd or by downloading the file from the recourses tab on your screen. System response and access times may vary due to market conditions, system performance, and other factors. Margin trading involves risks and is not suitable for all accounts. Sheridan Options Mentoring (SOM) is a third party and does not represent TradeKing. SOM s content does not reflect the views of TradeKing and may not have been reviewed by TradeKing. TradeKing is not compensated by SOM. SOM assumes all benefits, risks and liabilities associated with SOM content. Market timing is a complex investment strategy which involves risk and may incur additional commission costs. Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. 2
Disclaimers Any strategies discussed and examples using actual securities and price data are strictly for illustrative and educational purposes only and are not to be construed as a recommendation, or solicitation to buy or sell securities. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing s systems, services or products. While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility, there is no guarantee that this forecast will be correct. The Greeks (Delta, Gamma, Theta, Vega, Rho) represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract. There is no guarantee that these forecasts will be correct. The projections or other information generated by TradeKing's tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. 2013 TradeKing Group, Inc. Securities offered through TradeKing, LLC. All rights reserved. TradeKing is a member of FINRA and SIPC. 3
Option Basics 3/14 Session 5: Cash-secured Puts 3/19 Session 6: Married/Protective Put; Collar Strategies 3/28 Session 7: Course Review Register: http://tradeking.webex.com
Cash-secured puts Q & A Speakers: M. Kahn and B. Overby Audio Help: 866-569-3239 5
Cash-secured puts Thanks for coming! Speakers: M. Kahn and B. Overby Audio Help: 866-569-3239 6
Dan Sheridan Cash Secured Puts Mar 14, 2013 Sheridan Options Mentoring, Inc. Page 1
Disclaimer Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation at www.theocc.com. The information in this presentation is provided solely for general education and information purposes. Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes. In order to simplify the computations, commissions and other transaction costs have not been included in the examples used in this presentation. Such costs will impact the outcome of the stock and options transactions and should be considered. Multiple leg strategies involve multiple commission charges. Investors should consult their tax advisor about any potential tax consequences. No statement within the presentation should be construed as a recommendation to buy or sell a security or to provide investment advice. Supporting documentation for any claims, statistics, or other technical data is available from Sheridan Options Mentoring at www.sheridanoptionsmentoring.com. Chicago Board Options Exchange, Incorporated (CBOE) is not affiliated with Sheridan Options Mentoring. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-cboe product or service described in this presentation. Page 2
Cash Secured Puts Page 3
Cash Secured Put Date: 10/12/2012 XYZ Price: $150.00 NOV(36) Options Price Delta Trade 145 Puts $1.50-26.4 1 Delta 26.4 Gamma -3.9 Theta 4.0 Vega -15.4 Credit $ 150 Margin $ 2,650 Cash* $ 14,350 *Cash required in an IRA Max gain $150 Max loss if assigned $14,350 TradeKing commission of $4.95 + 0.65 not included Page 4
Cash Secured Put Date: 10/12/2012 XYZ Price: $150.00 Max gain if expired worthless $150 Max loss if assigned and stock goes to zero $14,350 TradeKing commission of $4.95 + 0.65 not included Page 5
Compare to Covered Write ITM Date: 10/12/2012 XYZ Price: $150.00 Price Trade Common Stock $150.00 +100 NOV(36) Options Price Delta Trade 145 Calls $6.00 72.7 1 Delta 100.0 27.3 Gamma -3.7 0.0 Theta 0.0 3.6 Vega -15.7 0.0 Debit $ 15,000 14,400 DEBIT CALCULATION $ 15,000 $150.00 * 100 shares $ (600) Sold option premium $ 14,400 Total Debit Required Max gain if assigned $100 Max loss if stock goes to zero $14,400 TradeKing commission of $4.95 + 4.95 + 0.65 not included Page 6
Cash Secured Put Versus Covered Write ITM Cash Secured Put Delta 26.4 Gamma -3.9 Theta 4.0 Vega -15.4 Covered Write ITM Delta 27.3 Gamma -3.7 Theta 3.6 Vega -15.7 Credit $ 150 Margin $ 2,650 Cash $ 14,350 Debit $ 14,400 Max gain if expired worthless $150 Max loss if assigned and stock goes to zero $14,350 TradeKing commission of $4.95 + 0.65 not included Max gain if assigned $100 Max loss if stock goes to zero $14,400 TradeKing commission of $4.95 + 4.95 + 0.65 not included Page 7
Cash Secured Put vs Covered Write ITM Date: 10/12/2012 XYZ Price: $150.00 Page 8
Dan Sheridan Sheridan Options Mentoring, Inc. Next sessions: March 19 2pm ET Married puts and collars March 28 2pm ET Option Basics Course Review http://www.tradeking.webex.com Page 9