Here is a trade I just put on in my personal account.
The stock is NLY. The trade is a simple Put credit spread
Sell to Open Oct 16 Puts (.40)
Buy To Open Oct 15 Puts (.26) for a credit of .14 cents per spread.
Trade has a 74% probability of success. And can make 16.2% if left to expiration.
NLY is a financial company but a very boring stock. I love owning this one as well because it pays a little over 10% dividend right now.
So here is how the trade works: If NLY is above 16 on expiration day (right now it is trading at 17.68) I make the whole 16.2% minus whatever commissions I paid to get into the trade. If NLY is below 16 and above 15 I will be assigned the stock if I don’t exit the trade. Again, I don’t mind owning this stock. if NLy is below 15, I lose the entire amount that I can risk, which is $86 per spread, plus the commisisons I paid unless I exit the trade.
Here’s the cool part. This is a chart of the stock. The red line is the breakeven on the trade. NLY has to be below that line for my to lose money. Guess what? It has not been that low in MONTHS!
But wait! It gets better. I plan on adding a call spread as well. Selling the 19 stirke and buying the 20. Notice that the stock has not been above 19 in months either. So even though the probability of profit is listed as 74%, I feel it is a lot more than that.