Using options and turning a loser into a winner with Twitter

This does not look like a chart that would garner a profitable trade..but it has.

twtr

I entered a longer term trade idea back in September 2016 when buy-out rumors lifted Twitter stock from around $18 a share to $24, see previous blog here. Even though my entry price is 32% above the current price ($16.62) I’ve been able to realize a $723 dollar profit before fees and commissions. This translates into a 16% gain.

Making money on a stock that goes down is only achievable if you short the stock or sell options. In this case, I did not short Twitter, rather I used the power of selling options to reduce my cost basis and realize a gain.  Every time I sold an option I collected a premium (credit). This strategy is very useful when a stock is in a consolidation period because as time goes by without the stock making a big move in one direction or the other I continue to sell options and collect a premium which reduces my overall cost basis. In the past four months I’ve made 13 option trades and collected a premium each time. Below you can see every time I sold an option contract and how much I collected for it. The breakdown will show that each time I sold an option I reduced my overall cost basis and eventually was able to turn this trade into a profitable winner.

Here are the numbers.

These 600 shares were either purchased outright or were assigned to me because I sold put options. For more information on selling put options contracts see my previous blog here.

twtrstock

Out of the 600 shares I purchased, 400 shares have been sold for a $948 loss. I currently own 200 shares.

twtrsales

Even though I sold those shares for a loss I was able to turn this trade into a winner by selling options and collecting a premium. These are the options I sold which expired. The premium I collected is in yellow.

twtrexpired

These are the options I sold which were assigned to me. The premium I collected is in yellow. Adding up the total premium I collected on the expired and assigned options equals $1672 in profit before fees and commission. When you subtract the loss from the 400 shares I sold at a loss it equals $723.

twtrassigned

For more information on how selling options helps you reduce your cost basis see my previous blog here.

Here are my current open positions. I’m waiting for another rumor or slight pull back before adding to this position.

twtropen

Follow me on Twitter @Jeffreytief

The TachusChord website is for educational use only. Any opinions, news, research, analysis, prices, or other information contained on this website, it’s social networks, email distributions or any other material provide by the TachusChord and associated companies, employees or volunteers is provided as general market commentary, and does not constitute investment advice or a solicitation to buy or sell any stock, foreign exchange contract, contract for difference or securities of any type.

 

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