July 7th, 2023
How a LoNGer-Term Trade Turned Into a Short-Term Winner
While we often trade shorter-term options in the Income Masters program, we recently recommended a longer-term trade in liquefied natural gas producer Cheniere Energy (LNG).
On June 22, with the stock trading at $148.76, we recommended selling to open the LNG 18 Aug 135 Put for around $1.85, or $185 per contract.
We noted at the time that our goal was not to hold the position until expiration, which was 57 days away and past the company’s next earnings date. Rather, we said we’d look to exit the position with around 50% of the max profit in 30 days or less.
After hitting a low of $146.58 on June 27, the stock moved higher. By July 3, which was just 11 days after we entered the trade, LNG was trading above $155 and the premium on the put we sold had fallen below our target exit price to around $0.75.
That meant we could close the trade and pocket $1.10, or $110 per contract, or nearly 60% of the max profit.
When all was said and done, we earned a 0.8% return on the $13,500 per contract in capital needed to secure the 135 strike put. And since the trade was only open for 11 days, our annualized rate of return was 28%. All in all, it was a solid trade.
We will continue to trade longer-term options like this from time to time with the goal of generating large chunks of income upfront and closing out early.
Any trade or trade idea discussed is for educational purposes only. They will not be tracked as an official trade recommendation.7
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