Establishing 84% Probability of Success Put Trades in Bear Markets

Selling deep out-of-the-money cash-secured puts in bear markets will provide us with additional protection to the downside in return for lower, but still significant, option returns. This article will highlight the use of Delta and implied volatility to establish a framework for executing such trades with n 84% probability of success. What is Delta? This is one of the Option Greeks. There are 3 ways to define Delta. The one related to this topic is the probability of the option expiring in-the-money (or with intrinsic-value) at expiration. If we sell a put option with a Delta of -16 (put value is inversely related to share price), we have (approximately) an 84% probability of avoiding exercise without exit strategies. What is implied volatility (IV)? This is a forecast of the security’s price movement as implied by the option’s price movement in the marketplace. Since IV is typically published an annual basis and based on 1 standard deviation, we must use a conversion formula or calculator (we have one, folks) to determine the expected price range of a stock or ETF during a specific contract cycle. Since IV is based on 1 standard deviation (accurate 68% of the time), it will be accurate 84% of the time on the lower and upper ends of the range (68% + 16%). A real-life example with Jabil, Inc. (NYSE: JBL): IV on 10/19/2022 JBL: IV on 10/19/2022 The BCI Expected Price Movement Calculator (available to premium members) using an annual IV of 38.64% Expected Price Movement of JBL Using IV The spreadsheet guides us to a breakeven price point of $54.06 (circled in red). This will include the strike price – the put premium. As it turns out, the strike with a Delta closest to 16 was the $55.00 strike which had a Delta of 18. No other strike was closer. Broker platform showing a bid-ask spread of $0.80 – $0.95 for the $55.00 put option JBL: Put Trade Entry Data We will enter a put premium of $0.85 into our BCI Trade Management Calculator to establish initial calculations and exit strategy price points. JBL: Initial calculations using the BCI Trade Management Calculator JBL: Initial Put Calculations Note the following for this 84% probability of success trade: Breakeven price point is $54.15 (yellow cell in the middle of the image), approximating our target of $54.06 (expected price movement calculator) The 31-day initial return is 1.57%, 18.48% annualized (blue cells) If we allow the put to be exercised (if ITM at expiration), we will have purchased JBL at a discount of 10.94% from the price at trade initiation (brown cell) The exit strategy price points are calculated in the yellow cells at the bottom of the image Discussion Defensive put-selling strike selections can be determined by using Delta and/or implied volatility. The use of these data points can assist us in establishing (approximately) 84% probability successful trades. Premium Member Benefits Video This is a great time to join our premium member community with its stock screening and educational (over 250 videos) benefits. We offer more benefits than ever before. For information, click here. For video explanation, click here. Your generous testimonials Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission: Alan & Barry, Happy holidays to the entire Blue Collar investor team and all the people along with Alan and Barry involved in the making and distribution of this amazing video product that helps us fledgling traders in our journey up this trading mountain! Thank you, Alan and Barry. You have helped me grow as an options trader over the years! Steve ______________________________ Upcoming events To request a private webinar for your investment club, hosted by Alan & Barry: info@thebluecollarinvestor.com 1. Money, Markets, & Monetary Policy Virtual Expo April 11th, 2023 2 PM – 4 PM ET Master Class (paid event to The Money Show) In depth presentation on selling cash-secured puts Registration link to follow. 2. Wealth365 Summit April 17th – 22nd Covered Call Writing Dividend Stocks to Create a 3-Income Strategy + A Streamlined Approach to Covered Call Writing Covered call writing is a low-risk option-selling strategy that generates weekly or monthly cash-flow. By mastering the skill of strike price selection and adding dividend distributions, a potential 3-income strategy can be crafted with a goal of beating the market on a consistent basis. Bonus topic: An introduction to the BCI streamlined approach to covered call writing creating a more user-friendly and time-efficient path to this low-risk option-selling program. Topics covered in this webinar include: Strategy analysis Option basics What is covered call writing? Dividend distribution Stock selection Option selection Trade management NEW: A Streamlined Approach to Covered Call Writing Real-life examples will be highlighted with Dow 30 stocks using option-chains and calculation spreadsheets. Attendees will have the opportunity to participate in written Q&A during the entire webinar. Specific time, date and registration link to follow. 3. Your Mid-Year Portfolio Review Virtual Expo June 27th – 29th, 2023 Specific time, date, topic & description and registration link to follow. Alan speaking at a Money Show event *********************************************************************************************************************** [Image] Here are Some More Investing Tips and Resources. Enjoy! Sponsored [Worse than CBDCs …]( If you thought the Fed’s trial balloon about a Central Bank Digital Currency (CBDC) was frightening, wait till you see this … This newly released presentation from Weiss Ratings is all about the Fed’s new plan to centralize — and gain the power to control — your personal or business checking accounts and nearly ALL your financial transactions. [Click to discover how]( [Privacy Policy/Disclosures]( [Establishing 84% Probability of Success Put Trades in Bear Markets](?site= Selling deep out-of-the-money cash-secured puts in bear markets will provide us with additional protection to the downside in return for lower, but still significant, option returns. This article will highlight the use of Delta and implied volatility to establish a framework for executing such trades with n 84% probability of success. What is Delta? This is one of the Option Greeks. There are 3 ways to define Delta. The one related to this topic is the probability of the option expiring in-the-money (or with intrinsic-value) at expiration. If we sell a put option with a Delta of -16 (put value is inversely related to share price), we have (approximately) an 84% probability of avoiding exercise without exit strategies. What is implied volatility (IV)? This is a forecast of the security’s price movement as implied by the option’s price movement in the marketplace. Since IV is typically published an annual basis and based on 1 standard deviation, we must use a conversion formula or calculator (we have one, folks) to determine the expected price range of a stock or ETF during a specific contract cycle. Since IV is based on 1 standard deviation (accurate 68% of the time), it will be accurate 84% of the time on the lower and upper ends of the range (68% + 16%). A real-life example with Jabil, Inc. (NYSE: JBL): IV on 10/19/2022 JBL: IV on 10/19/2022 The BCI Expected Price Movement Calculator (available to premium members) using an annual IV of 38.64% Expected Price Movement of JBL Using IV The spreadsheet guides us to a breakeven price point of $54.06 (circled in red). This will include the strike price – the put premium. As it turns out, the strike with a Delta closest to 16 was the $55.00 strike which had a Delta of 18. No other strike was closer. Broker platform showing a bid-ask spread of $0.80 – $0.95 for the $55.00 put option JBL: Put Trade Entry Data We will enter a put premium of $0.85 into our BCI Trade Management Calculator to establish initial calculations and exit strategy price points. JBL: Initial calculations using the BCI Trade Management Calculator JBL: Initial Put Calculations Note the following for this 84% probability of success trade: Breakeven price point is $54.15 (yellow cell in the middle of the image), approximating our target of $54.06 (expected price movement calculator) The 31-day initial return is 1.57%, 18.48% annualized (blue cells) If we allow the put to be exercised (if ITM at expiration), we will have purchased JBL at a discount of 10.94% from the price at trade initiation (brown cell) The exit strategy price points are calculated in the yellow cells at the bottom of the image Discussion Defensive put-selling strike selections can be determined by using Delta and/or implied volatility. The use of these data points can assist us in establishing (approximately) 84% probability successful trades. Premium Member Benefits Video This is a great time to join our premium member community with its stock screening and educational (over 250 videos) benefits. We offer more benefits than ever before. For information, click here. For video explanation, click here. Your generous testimonials Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission: Alan & Barry, Happy holidays to the entire Blue Collar investor team and all the people along with Alan and Barry involved in the making and distribution of this amazing video product that helps us fledgling traders in our journey up this trading mountain! Thank you, Alan and Barry. You have helped me grow as an options trader over the years! Steve ______________________________ Upcoming events To request a private webinar for your investment club, hosted by Alan & Barry: info@thebluecollarinvestor.com 1. Money, Markets, & Monetary Policy Virtual Expo April 11th, 2023 2 PM – 4 PM ET Master Class (paid event to The Money Show) In depth presentation on selling cash-secured puts Registration link to follow. 2. Wealth365 Summit April 17th – 22nd Covered Call Writing Dividend Stocks to Create a 3-Income Strategy + A Streamlined Approach to Covered Call Writing Covered call writing is a low-risk option-selling strategy that generates weekly or monthly cash-flow. By mastering the skill of strike price selection and adding dividend distributions, a potential 3-income strategy can be crafted with a goal of beating the market on a consistent basis. Bonus topic: An introduction to the BCI streamlined approach to covered call writing creating a more user-friendly and time-efficient path to this low-risk option-selling program. Topics covered in this webinar include: Strategy analysis Option basics What is covered call writing? Dividend distribution Stock selection Option selection Trade management NEW: A Streamlined Approach to Covered Call Writing Real-life examples will be highlighted with Dow 30 stocks using option-chains and calculation spreadsheets. Attendees will have the opportunity to participate in written Q&A during the entire webinar. Specific time, date and registration link to follow. 3. Your Mid-Year Portfolio Review Virtual Expo June 27th – 29th, 2023 Specific time, date, topic & description and registration link to follow. 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