On Monday of this week I put in place my trading options strategy on YUM Stock. Regular readers of my site will be aware of this one week trade. For those who are not, select this YUM Stock link to review the trade. I received a lot of emails from readers who followed this trading options example in YUM Stock. As explained in my article, this YUM Stock trade was for just this week.
If the trade failed to work I would then have rolled the trade into July to have given it more time to work out. Instead though everything worked out better than expected and I closed the trade today near the end of the day. The profit was a lot more than expected! I sent out notices to those who had written me about the trade and I have now received a lot of emails telling me their successful results as well.
Percentages Are Very Misleading
Overall most returns on this YUM Stock options trade were over 400%. But percentages can be terribly misleading. 400% seems huge and I am sure every investor has received lots of emails from traders extolling their huge returns on different trades. I received one the other day that showed a return of 1250% and told me I too could receive such great returns for $199 a month.
This would be great if I had invested 500,000.00 in that one trade. Now that would have been some return and I would only need to subscribe for one month (even better). Instead though when you see returns such as in this YUM Stock trade, remember that this is 400% on just $510.00 being invested. For my overall portfolio of more than $700,000.00 it means a return of a bit more than a quarter of a percent. So try to keep things in perspective.
What is actually more important with this trade is understanding how it performed, why it did perform this way, how it could be repeated with YUM Stock or other stocks and why as you will read further down, many investors bailed out too early and did not have these kinds of returns.
YUM Stock Options Trade Results
If you recall, my YUM Stock call Options were at June $60 strike where I feel a lot of support rests for YUM Stock. My naked puts were at $57.50 for July and the Naked Calls were at $67.50 for July.
Below is the complete review of my YUM Stock Options Trade for this week:
Review Of Yum Stock Trading Options Strategy:
Bought 10 June $60 Yum Stock Call Options for $3.35
Sold 10 July $67.50 Yum Stock Call Options for $1.59
Sold 10 July $57.50 Yum Stock Put Options for $1.25
Trading options on YUM Stock at these levels makes a lot of sense. For a small costs I can control 1000 shares with limited risk.
Today’s Goal For YUM Stock options trade
As planned, today was the final day for this YUM Stock options trade. All day though I tried to get a fill for my 10 June $60 Yum Stock Call Options which I had originally bought for $3.35. For whatever reason the call options sell side did not give fair value for the stock until near the very last minute. Perhaps there were a few too many of us holding the $60 calls. I sent out an email to those readers following this trade who had written me that I was sending notice that I was exercising my options at $60.00. I then sold 1000 shares of YUM Stock for $65.00.
I bought to close the July $67.50 naked calls for $1.10.
I have kept open the July $57.50 naked puts which I sold for $1.25. I would be happy to own shares of YUM Stock at that price and right now I won’t buy to close unless I can get .20 cents or less.
YUM Stock Options Trade Earnings:
So here are the earnings results from the YUM Stock trade without commissions.
I sold the JUNE YUM STOCK 1000 shares at $65.00 and sent notice that I exercised the JUNE $60 options. Total income = $1650.00.
I bought back the July $67.50 naked calls for $1.10. These were originally sold for $1.59. Total naked calls earnings= $490.00
I have left open the July $57.50 naked puts which I sold for $1.25.
Total Profit from this one week trade = $2140.00
If my July $57.50 naked puts expire I will earn an additional $1250.00 in the trade.
YUM Stock Options Trade Quick Review
I received a variety of emails all week from readers who described to me their YUM Stock options trade positions and what they were doing. I thought I would discuss a couple of things that happened to readers with their options trade in YUM Stock.
On Monday June 11 the YUM Stock Options Trade was put in place. I received 325 emails from readers who followed the article and put in place the same trade.
On Wednesday I received 175 emails from readers who bailed out of their YUM Stock Options Trade as the stock fell to $62.50 before closing at $62.86. Each reader who bailed was spooked by the downturn in YUM stock on Wednesday.
But on Monday when the trade was put in place, YUM Stock range was from a high of $65.34 to a low of $63.40 for a range of 2.96%.
Wednesday’s pullback in the stock was from a high of $64.38 to a low of $62.50 for a range of 2.92% or pretty much the same as Monday. But investors became nervous and got out. Most broke even or made a bit or loss some when they bailed on Wednesday.
This YUM Stock Options Trade was put in place on Monday. On Wednesday half of readers who emailed me bailed out.
What Investors Missed on YUM Stock
A stock such as YUM Stock has many days with a 2.5 % to 3.5 % range. This is common and can be seen by reviewing past trading sessions in the stock. When on Wednesday the stock closed lower than Monday, investors should have waited one day to see if there might have been a bounce so that when they closed their option trade they may have done so with a small profit.
As well the support in YUM Stock is particularly strong between $60 and $62.50 and I had previously written about how YUM stock could and probably would fall to $62.00. By owning the JUNE $60 YUM Stock calls for .51 cents I was surprised that so many would bail when the stock had not yet fallen past $62.00. Many investors who I wrote to told me they had forgotten where support was in YUM Stock.
The clue for YUM Stock this week was the stochastic market timing tools. The Slow stochastic by Wednesday was at %K 9.46 which is very oversold. The Fast Stochastic on Wednesday was at %K 5.15 which is extremely oversold. As readers know from my various market timing articles, readings this low are usually followed by a bounce in the stock.
Indeed by Thursday morning, the fast stochastic was already showing a crossover and an up bias in YUM Stock.
YUM Stock technical indicators showed very oversold on YUM Stock
So Why Did 50% Bail On the YUM Stock Options Trade?
I wrote emails on Wednesday evening to all those who were in the YUM stock options trade. To those who stayed in I asked why they had stayed and to those who bailed I asked why they had left. Of the investors who bailed, all said they were spooked by the downturn on Wednesday and of the 175 who bailed, 163 did so because they had decided they did not want to own the stock after all.
Of the remaining investors who stayed on Wednesday all said they would own YUM stock at $60.00 if it was assigned to them.
This shows the confidence investors have who are willing to own shares in a stock. This confidence allows them to not be whipsawed. Those who jumped out of the trade did so because they “thought” they would own shares but when it looked a little less secure on Wednesday they suddenly decided they did not want YUM Stock shares. This is flip-flop between thinking you would own shares and then not wanting them is a detriment to put selling and trading options investing.
If as an investor you have no real interest in owning stocks then you need to establish different strategies and sell strikes associated with your overall goals and strategy. In the case of YUM Stock, an investor could have simply sold the July $57.50 naked puts and if no stock is your goal then pick up a protective put so you effectively have a credit spread in place. This is an extremely simple trade which is below support in YUM Stock and has a very good chance of not being assigned shares. On Monday when I sold the July $57.50 naked puts an investor could have earned $1.25 or 2.1% for a month.
Understand The Type Of Investor You Are
There is never any point in going into a trade believing you would own stock when in effect you would not. To understand what type of investor you are ask yourself how many stocks have you been assigned in the past two years and how many times have you taken losses or earned just small gains when you decided to buy back a position because of changing your mind about owning shares.
Once you understand the type of investor you are, then establish clear goals and put in place winning strategies. It is important to consistently earn profits. Changing your mind destroys your ability to compound your capital.
Yum Stock In My Trader’s Journal
Last, it is important to keep a trader’s journal which should have the support level for YUM Stock written. In my journal for this YUM Stock options trade I have written that YUM Stock can easily have 3% daily swings and that support is between $60 to $62.50. I have also written down my plan to roll into July or even August, my positions should it be necessary. Finally, I also show the daily readings of the fast and slow stochastic indicators in my trader’s journal. Then with a glance I know how to judge the trade and when to realize it is time to roll out. That glance is all I need to know whether to stay the course or adjust the trade and I have the adjustments written in my trader’s journal in advance so I know what I will be doing should it become necessary.
YUM Stock Options Trade Was Profitable Because Of Planning
The secret to this YUM Stock options trade was having all the information in advance in my journal and knowing that if necessary I would be happy to own shares at the $60.00 strike in YUM Stock. That kind of information about the history of YUM Stock and the confidence of owning shares makes all the difference in both the consistent profit earned and the ability to withstand being whipsawed in and out of trades.
For interested investors this YUM Stock link will take you to YUM Brands Investor Pages.