Last Week's Income Report: October 25th, 2021
Thanks to an impressive earning season, the S&P 500 has been making new all-time highs.
From here, if we see solid earnings from Facebook (FB), Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN) and Apple (AAPL) this week, markets could run even higher.
“This is a make-it or break-it type of week in earnings season. Our expectation is for positive results,” said Alex Chaloff, co-head of investment strategies at Bernstein Private Wealth Management, as quoted by CNBC.
At this point, Dow 40,000 may not even be out of the question.
Sure, there’s inflation, higher energy prices, fear of Fed action, a pandemic, geopolitical tensions and concerns over slowing economic growth. But markets are shrugging it all off.
Over at Options Income Blueprint, we closed another winner last week, generating $31 in cash.
That win was from closing our Walgreens Boots Alliance (WBA) put, which brings our total cash for the month of October to $543 with another week to go before we close out the month.
We’ve now traded WBA six times so far in 2021 – five winners and a small loser – generating $152 in cash.
Let’s take a quick run through our latest trade.
On Oct. 19,with the stock trading at $47.82, I recommended members sell the WBA Oct Week Four (10/22) 47.50 Put.
At the time of the recommendation, I noted the company had recently delivered an excellent earnings report. By selling an in-the-money put, we were able to take advantage of heightened post-earnings volatility and collect a large premium.
We picked up $0.34 in cash, or $34 per contract, for selling the put. While that may not seem like a large amount of income, consider that we put up just $4,750 to secure the trade (47.50 strike x 100 shares per contract).
So, had the option expired worthless, we would have earned a 0.7% return ($34 in premium / $4,750 in capital required). At Options Income Blueprint, we generally aim for a 0.5% return in a week, so this trade exceeded our goals.
Since there were four days till expiration, our potential annualized rate of return was 65% had the option expired worthless at the close on Friday, Oct. 22.
But we didn’t end up holding the position through expiration. By Thursday, WBA was trading well above the strike price of the put we sold, and the cost of that put had dropped to just $0.03.
I recommended members book profits rather than risk hanging on for another day and a half for a few more pennies in premium.
We closed the put and booked a profit of $0.31, or $31 per contract. While our income was reduced slightly, we still earned a 0.7% absolute return. And since the trade was open for three days rather than four, our annualized rate of return shot up to 79%.
I’m often asked about when to close a trade early. And I can’t give you a hard-and-fast rule.
It’s an art more than a science, and one I’ve honed over decades of trading. But every person should be setting goals for their trades upfront. And once those goals are met, there is nothing wrong with taking profits of the table.
Not only can it remove risk and free up capital for new trades, but as you just saw with our WBA trade, it might even yield a better return on your money.