1) Bought back 80 Feb. 13's for $127 each. Net cost of $10,235. The puts had been sold for just $25 each on Sept. 21 fetching $1,955 and so I had to book a short-term loss of $8,370. However, I then turned around and:
2) Sold 100 of the 10-strikes out to Jan. 2014. I received $114 apiece for them or $11,335 after commissions.
If the new margin-safe price of $11.25 holds, I will wind up with PROFITS of 3K on a 16-month investment of 20K. That would be about 11% annualized but with an expected early out, it will likely be more like 13% to 15%. The hallmark of my methods is that even on my worst investments, I rarely end up with losses from inception.
11/16/2012 12:21:13 Sold 50 HPQ Jan 18 2014 10.0 Put @ 1.14 5,671.51
11/16/2012 12:21:13 Sold 50 HPQ Jan 18 2014 10.0 Put @ 1.14 5,664.51
Your assumptions are in error: 100 puts at 10 strike means you are at risk for $100k, not just $20k - if HPQ fails and the stock is put to you at $10. So you are attempting to overcome an $8k loss but by putting $100k at risk to hoping you make $3k? That's crazy.
Very good analysis. It's nice to see that some people get it. He sure doesn't.
He claims, with no basis whatsoever, that he knows how low a stock could go in a bear ,market, with fundamental destruction of businesses, etc. He has no clue. Extreme leverage works very well in a rising or even benign market. It fails miserably in a bear market. He showed that with his original Pfe program. While not as risky, his present put writing is not without significant risk, especially with some of the more risky stocks he is using. In particular, HPQ has become an extremely dangerous stock just over the last few months as the shift to tablets from PCs has rapidly accelerated and sharp reductions and competition in Enterprise have become apparent. To think that he knows that the stock won't get completely destroyed, is naive. He demonstrates yet more naivete when he thinks that when he takes a loss in a put write transaction that he must roll down in the same stock rather than write a far more likely to succeed put.. His strategy assumes never giving up on a losing stock, only continued rolling while the company goes downhill. That is not a strategy that makes any sense. It is simply a demonstration of arrogance.
Once he said that his original basis for his Pfe puts and Leaps was 100K, even though it is obvious that one could not put on his positions without further funds, he lost my interest completely. Alice in Wonderland is not investing. Phony calculations don't cut it and can't be taken seriously.