TO PUT OR NOT TO PUT…

THAT IS THE QUESTION

WHETHER ‘TIS NOBLER IN THE MIND

TO PUT THE PHONE DOWN,

OR JUST KEEP CALLING…

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M-STREETBOYS

What are Put Options? A Put is a contract on a particular stock, index or other security that allows the investor to sell the underlying stock at a set price (strike price).The holder of his option has paid a premium (cost of the contract) to buy it. Put options are profitable when the market is in decline. If the investor has a put on a stock that has now fallen enough to cover the cost of the premium, the person would be profitable.

Ways to Profit with Put Options Trading them:If the Put is profitable, the investor can sell or trade the contract back to the market. The profit on the contract is shown by the premium increase on the option. As the market declines, the premium increases. This premium increase allows the investor to sell the contract. He is not "exercising the option". He is trading it out. This is how most options are done vs. exercising.

PUT OPTIONS11.13.10

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McKinney, Texas

A PUT Option gives you the right

to sell a set number of shares

of stock at a given price until the

option expires at the expiration date.

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McKinney, Texas

You can sell a Put optionto purchase shares at a the

Investor at today’s price.

Sell a Put for stock at $50 striketo be exercised at any time

until expiration.

If the stock stays the same orincreases you will not be

exercised and you keep the Premium at expiration.

If the stock moves down, youmay be called to buy the stock

at your strike price. (HigherThan market.

Selling a PUT

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Selling a Call

If the Stock stays the same or decreases,You keep the money you paid for the Call.

However, If the stock goes up, you may be called to deliver the Stock at the lower strike price.

An important note:

“Exercising” them:When an investor exercises a Put Option, he or she is selling a stock they already own. The right of a put holder is the right to sell the stock at the strike price, regardless of the actual price in the market. If you owned a Put with a strike price of 50, and the market has declined to 40, you could purchase the actual the stock in the market at 40 and then exercise the put at 50. You would make 10 points on that stock, minus the premium paid. [ $1000 for 100 shares, minus the $300 = $700 profit.]The break-even for investors who own put options (disregarding commissions) is the strike price minus the premium paid. In the above example, if the investor paid $300 for the option - his break-even would be 47. Since the market in our example went down to 40, the actual profit for that person would be $700.

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McKinney, Texas

Writing [SELLING] a Put OptionWhen you sell or short a put option, you are "writing" the contract. The writer is someone who is bullish on the market. The seller collects the premium (as opposed to the buyer who pays the premium) and is hoping the option expires worthless. The premium is the writer's maximum gain. So, obviously if the premium is all that he can make - having the option expire is the best case scenario.

Put option writing [SELLING] does carry risk. If the option is exercised (by the holder/buyer – the other side), the writer must purchase the stock from the holder at the strike price. In the example above, the writer would have had to buy the stock at $50 (the current price), while the market was at $40. He would be stuck with a stock 10 points above the market. His loss would be lessened by the premium received. The writer can buy back the put before it is exercised, but if the put has gained value, the purchase price would be higher than the premium he originally got - so, it would be a loss either way. The option is expiring is the best bet.

M-STREETBOYS

McKinney, Texas

McKinney, Texas

M-STREETBOYS

A note about “selling” puts (and calls).

When selling or writing a put, since the puts go up in value as the stock moves down, you don’t want the stock to move down, because then the put will be higher in value, and you will pay more to buy it back, and lose the credit you received whenyou “sold” the put.

For example, if a put was “selling” at $10.00 when the stock was, say $200, and the stock dropped to maybe $150, the Put will go up to maybe $12.00. so you would lose $2.00 or $200 on 100 contracts when you BOUGHTthe PUT when closing out.

Similarly, when “selling” a Call, you really want the stockto go DOWN, so the Call decreases in value. Then whenyou “close out,” the Call will be at a lower price, and you will keep the difference in premium paid.

Covered Put Option Writing Since the seller or writer of puts must purchase the underlying stock at the strike price, he must have the cash to do that. Selling stock short and using the proceeds to cover an exercised option can be done. Also, the premium received for selling the put option can assist a short position to get greater profit.

As with any option, time is the biggest factor. Put options expire monthly. All options carry large risks, but can present large profits. Educate yourself further and talk to your broker.

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McKinney, Texas

M-STREETBOYS

McKinney, Texas

Time

$$ Value

Usually 7 to 10 days….4 to 7 weeks

Acquire an Option at least 4 to 7 weeks ahead of expiration

Get Rid Of an Option at least 7 to 10 days ahead of expiration

OPTIONS“Time decay”

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TR

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TB

OYS

Expiration

JCP 2010Vert 33/34 Using Marks

date Vert call Vert put stock call put18-Oct 48 42 33.33 194 215

19 43 57 32.73 160 24520 44 56 32.96 166 22521 39 61 32.42 133 25222 40 61 32.55 134 23725 41 59 32.71 134 22426 42 58 32.77 138 21727 35 66 32.26 112 25128 28 73 31.69 81 28529 23 76 31.18 64 320

1-Nov 21 78 31.13 57 3252 24 80 31.45 65 3003 22 79 31.24 56 3104 33 69 32.32 61 2175 36 65 32.59 91 1958 43 57 33.13 119 1629 31 70 32.19 73 220

10 37 64 32.67 88 18611 36 65 32.22 83 22412 12 88 31.13 20 29315 9 76 31.22 15 266

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aepverts 36/37 nov,10,strk

v-c v-p stk c-36 p-3726-Oct 54 55 36.66 80 110

27 56 59 36.8528 95 35 37.2129 85 20 37.44

1-Nov 100 40 37.28 140 602 90 25 37.633 94 25 37.554 97 25 37.595 110 17 37.70 170 328 74 25 36.939 70 33 36.90

10 55 35 36.6011 50 35 36.5412 55 45 36.52 70 55

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McKinney, Texas

BIDU-Oct 19 to 11/12

nov.10.strk

100/105v-lst-c v-lst-p stk $ 100-c 105-p

19 205 305 100 795 101020 190 305 100 750 106521 229 275 102 875 90022 305 182 107 950 41025 365 130 109 1130 28826 415 92 112 1365 19827 420 91 113 1370 17428 405 92 112 1300 18929 380 117 110 1100 2241 345 150 107 870 3002 381 107 109 1055 2093 410 89 110 1120 1584 405 91 110 1065 1585 385 104 108 930 1728 440 67 110 1060 1109 370 71 109 900 115

10 450 37 111 1180 6011 485 15 114 1420 3012 460 41 111 1090 61

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McKinney, Texas

This strategy is to realize a profit by making cash that is a net credit formed by the difference in a SOLD PUT price and a BOUGHT PUT price. While the stock goes up, the investor keeps the net credit (difference in premiums).

SELL a PUT at or near money (higher strike price).

BUY a PUT one or more strikes below #1 PUT in the same month, this provides the downside safety.

The margin requirement is the difference between the strike prices, usually 5 points/dollars.

The maximum risk is the difference between the strike prices, less the net credit (difference in premiums).

The maximum profit is the net credit (difference in premiums).

The break even point is the higher strike price (#1) minus the net credit.

Profit is realized when the stock price rises above this number.

Maximum profit is made when the stock price rises above the higher strike price (#1 PUT).

A profit is realized at any stock price between the break even point and the net credit.

BULL PUT CREDIT SPREAD – stock to go up

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Max Loss is the delta strike, minus net CREDIT.

Max profit is net Credit

BULL PUT CREDIT SPREADSTOCK SHOULD GO UP

Sell a PUT, Buy PUT below

Margin requirement is delta strike prices

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McKinney, Texas

Cautions with this strategy:

Anytime the underlying stock/index price is below the short put strike price, there is a chance that you may have to purchase stock to meet the short put obligation. Were this to happen you could sell the shares at the market pricing, or use the long put to sell the shares at the long put strike price.

The credit you receive for the trade is generally much smaller than the max risk of the trade, therefore it is prudent to close the short option before the position is at max loss. Many traders do this when the short option is near-the-money.

If you have closed the short option half of the trade you may want to consider holding the long option to possibly profit from continued directional momentum in the underlying. However, the danger is that the underlying will correct and whipsaw in the other direction.

BULL PUT CREDIT SPREAD

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Bull and bear credit spreads offer a trader a limited-risk strategy with limited profit potential. The key advantage to credit spreads is that in order to win they don't require strong directional movement of the underlying. This is because the trade profits from time-value decay. Vertical credit spreads can thus profit if the underlying remains in a trading range (stationary), freeing the trader from problems associated with market timing and prediction of the direction of the underlying.

BULL PUT CREDIT and BEAR CALL CREDIT

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McKinney, Texas

M-STREETBOYS

McKinney, Texas

Bull CALL DEBIT Spread - Stock upward

date stk prc delta bid ask strike net net net9-Sep 59.82 78 272 276 57.5

48 95 98 60 95-276 -181max loss

60.32 83 310 315 57.5 310-276 3456 114 117 60 95-117 -22 12

61.05 87 375 380 57.5 375-276 9967 162 165 60 95-165 -70 29

61.57 90 415 425 57.5 415-276 13973 195 199 60 95-199 -104 35

20-Sep 62.1 90 465 485 57.5 465-276 18979 236 240 60 95-240 -145 44

61.94 90 455 470 57.5 455-276 17921-Sep 78 227 231 60 95-231 136 43

5-Oct 62.8 92 530 540 57.5 530-276 25459 285 290 60 95-290 -195 59

10-Oct 63.23 95 570 590 57.5 570-276 294 74 320 330 60 95-330 -235 59=32%

kok

M-STREETBOYS

McKinney, Texas

Bull CALL DEBIT Spread - BUT Stock fails down

date stk prc delta bid ask strike net net net30-Sep 162.16 57 830 850 160 max loss

46 595 615 165 595-850 -255 -255

1-Oct 154.66 39 420 435 160 420-850 -43029 273 288 165 595-288 307 -123

4-Oct 156.39 43 450 465 160 450-850 -40031 293 305 165 595-305 289 -111

5-Oct 156.16 42 415 430 160 415-850 -43530 280 271 165 595-271 324 -111

6-Oct 150.27 25 192 199 160 192-850 -65816 111 117 165 595-117 478 -180

10-Oct 149.64 18 102 107 160 102-850 -74811 54 56 165 595-56 539 -209

ymgo

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M-STREETBOYS CLEAR AS CRYSTAL,

NOW, ISN’T IT ?

McKinney, Texas