Listen to the audio version of this article (generated by AI).
Managing Editor’s Note: Today, we’re hearing from our contributing editor Mike Burnick in his weekly feature.
Mike has over 30 years in the investment and financial services industry – from operating as a stockbroker, trader, and research analyst, to running a mutual fund as a registered investment advisor and portfolio manager, to being Research Director for the Sovereign Society, specializing in global ETF and options investing.
And he’s been senior analyst at TradeSmith for three years, running Constant Cash Flow, Infinite Income Loop, and Inside TradeSmith.
Here’s Mike…
Get More Than Your Money’s Worth With Our Fair Value Tool
BY MIKE BURNICK, CONTRIBUTING EDITOR, MARKET MINUTE
Jeff Clark and I both love selling put options.
It’s a great way to earn cash income upfront. And at the same time, aim to buy a stock you like at a discount below the current price.
But some folks are just into put selling for the money, the premium income earned, without getting put the stock.
If you’re one of them, you can run a simple TradeSmith options screen to easily find put options with high odds of paying you cash and expiring out of the money, so you don’t get put the stock.
Plus, you can zero in on trades that pay you more than your money’s worth, according to our Options360 Fair Value calculation.
Here’s how to do it.
Subscribers can login and click the Options360 tab, then click on Options Screener.
Next, add a few simple screening filters to find put option trades that pay you the most. I selected the option filters shown here:
- POP (probability of profit), set to 80% or more
- Option Trade Type, select Sell Put options
- Distance from Fair Value, set to more than 20%
Probability of profit is our trademark metric that tells you the odds of earning a profit on any option trade. In this case it’s over 80%. And trade type is sell put.
The third filter is our proprietary measure of an option’s fair value according to market pricing. Here, I’m scanning for put options that are priced 20% or more above their statistical fair value.
In other words, selling these options can earn you more than your money’s worth!
When I ran this screen with the filters above, I got 12 results with the top three shown.
Let’s zero in on the Super Micro Computer (SMCI) put option in the middle.
On the main Trade Overview page shown above middle, you can see this SMCI put option has a high 85% probability of profit.
You earn a Max Profit of $39 per contract sold. That works out to a Target ROI (return on investment) of 8.26% in a standard margin account.
Next, use the left or right arrow to scan through the data pages to find Fair Value. Here, you can see for yourself how the current option price is above fair value.
This shows you visually that the option’s Fair Value estimate is just $29, but the option is currently trading 30% higher at $39. You earn $10 more, over and above fair value.
That’s extra money in your pocket, and every little bit helps!
Bottom line: Our Options360 Screener and Fair Value tools can help you find option trades with a high probability of success. Plus, you can find mispriced options in real time, which you can take advantage of to earn more than your money’s worth when selling.
Good investing,
Mike Burnick
Contributing Editor, Market Minute
P.S. If any of the information in this issue is hard to understand, you should check out Jeff’s free option training videos right here.