Prophylactic Close-Outs on Teva Pharmaceuticals
Better safe than sorry…
By Dr. Paul Price of Market Shadows
Bombs are flying between Israel and Gaza. This is not new, but it does appear to be escalating along with tensions in the area.
Our Virtual Put Writing Portfolio had been short one contract of the TEVA Jan. 2015, $42.50 put, and two contracts of the TEVA Jan. 2016, $45 strike price puts. These batches were sold on different days (see table below).
Teva Pharmaceuticals has done very well since we initiated these trades. It was under $40 on Jan. 6, 2014, when we sold the first two puts. TEVA was $49.64 on May 7, 2014, when we sold another contract of the $45 strike 2016 series.
We are going to close out these short put positions to lock in gains and not risk stock market turmoil related to the unstable situation. We might be closing unnecessarily but don't want any unpleasant surprises.
We received $6.05 per share ($605) for the $42.50 put and $9.50 per share ($950) for the first $45 option. We took in another $480 when we sold the final $45 put last month.
We thus collected a total of $2,035 for the three contracts.
Today we closed all our positions to avoid worrying about war-related events affecting this Israel-based company.
Our buy-back cost was just $49 for the lower strike and $600 for the pair of $45 puts ($3.00 x 200). The total outlay for the BTC (buy to close) transactions was $649.
Net Profit: $2,035 – $649 = $1,386 (3 contracts)
These trades are now reflected on our Closed-Out Transactions list. Our virtual put writing portfolio was started on January 9, 2013. In the eighteen months since then we have had 41 winning trades (closed-out or expired) versus just 3 losers. That is a 93.2% success rate.
More importantly, we’ve achieved $24,806 in net profits simply by selling puts against marginable equity that was already on deposit in our margin-type account. Option sales can be highly profitable.
Check out all our open and completed option transactions here: Market Shadows Put Writing Portfolio.
