Selling Puts to Buy Stocks
Hey there, VWAPians!
If you joined me in my Warlock’s World on Tuesday, you were treated to a very different Warlock experience than usual.
We traded by candlelight. I talked slowly. Focusing on staying calm.
Not that we didn’t smash successful VWAP trades. Just allowing ourselves to stay calm, at least for one day.
This is the zen I bring EVERY DAY to Money Morning LIVE from 8:30 to 9:30 a.m. RIGHT HERE.
Then, I transfigure myself into my Warlock’s World where I calmly and sedately TEACH all the VWAPians how to trade VWAP from 9:30 to 11 a.m. ET.
And today, I’m coming back to the BIG ROOM for more VWAP trades at 1 p.m. ET!
Ahhhh, who am I kidding?
Nuts about VWAP! Nuts about trading! Nuts about the rule of three in comedy!
You know what else I’m nuts about? EARNINGS.
Earnings season is coming up fast and I. CAN’T. WAIT.
Warlock’s World veterans know that stocks reporting earnings provide perhaps the best opportunity for my patented 1-minute Multiday VWAP reversal.
There’s a lot of macro factors that can affect earnings — last “season” it was things like supply-chain constraints and rising costs due to inflation.
How these macro factors are handled are usually determined by the Federal Open Market Committee (FOMC), which metes out the economic policy of the central bank.
Whenever the Fed does anything — farts, sneezes, you get it — it tends to bring a lot of volatility to the markets. This volatility and what the Fed says can have a huge impact on earnings season.
That’s why I went to the Money Morning LIVE bullpen and tapped Garrett Baldwin on the shoulder for a special session centered around the latest Fed minutes release TODAY at 1:30 p.m. ET in the BIG ROOM – just after my usual 1 p.m. VWAP show.
We’ll laugh, we’ll cry, we’ll trade around the market chop that Fed minutes bring!
Plus, we’ll discuss any potential fallout the FOMC minutes could have on earnings season, which starts Jan. 14 with the big banks!
So make sure you GET IN HERE at 1:00 p.m. ET and stay for a special session with me and Garrett!
On Tuesday, while I was channeling my inner Gandhi, I was still able to find winning VWAP trades of stocks like Ford (F) and the Qs.
Members of my Warlock’s World know that I’m NUTS about VWAP and I typically DON’T OWN STOCKS.
The market is RIGGED and most stocks are GOING TO ZERO.
That being said, there are a few stocks that I would own.
That doesn’t mean I just go out and buy them though…
When I say I typically don’t own stocks, I mean it.
But the important word there is “typically.”
Even when I’m interested in owning stocks, I don’t just outright buy them…
I sell puts.
I know a lot of my VWAPians want to learn more about options than the basics.
Most of us understand that buying calls is bullish and buying puts is bearish.
This gets a little trickier to understand when we’re selling options, like my yearly tradition with SQQQ.
But that was about selling calls.
If I sell to open a put on a stock, I profit if the stock goes up… or at least stays above my sold put strike through options expiration.
If the stock falls below my sold put strike through options expiration, then I buy, or am “put” the stock at that strike price.
So I sell puts on stocks that I wouldn’t mind owning, because there is always a chance that the share price falls and I have to buy 100 shares of the stock per contract.
For this reason, the number of stocks that I’m willing to sell puts on is small.
On Tuesday, I went over how I’ve been selling puts on SoFi Technologies (SOFI).
SOFI all-time chart
This is the SOFI all-time chart, with each candle representing one month.
Looking at this chart, you can see that the all-time low for SOFI is $10.10, illustrated by the left-most candle.
That’s the lowest SOFI has ever been. No matter how beat up the stock has been, it hasn’t come anywhere close to this level for a long time.
Now, I like this company. This is one of the few stocks that I wouldn’t mind owning.
But instead of just buying the stock outright and hoping for the best, my plan is to sell put options on it.
I recently sold the SOFI July 15 $7.50 puts and received $0.40, or $40 per contract, for doing so.
If, by July 15, the SOFI share price is above $7.50, those puts will expire worthless. I’ll keep the $0.40 in premium per contract, and can start the process over again.
But, if the SOFI share price is below $7.50 by July 15, then I’ll be obligated to buy 100 shares of SOFI at $7.50 per share for each put sold.
Remember, the all-time low for SOFI is $10.10. It’s currently trading around $15 per share. It’s not impossible, but it’s unlikely that SOFI drops by more than 50% in a few months.
If it does drop that much? I am OK with buying it at that price because it’s one of the few stocks that I’m willing to own.
If it doesn’t drop that far? I’ll keep my premium and sell more puts. I can continue to collect premium until I am assigned the stock.
Might as well get paid to buy stock.
Don’t forget to join me at 1 p.m. ET in the BIG ROOM right here!
And right afterwards, stick around because Garrett Baldwin and I will be discussing the Fed minutes release!
That’s all for now, VWAPians!
Kenny “The Warlock” Glick
January 05 2022
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