Abstract: Explain the reasons for short put Palantir options and selling US stock BRK.B, and share the advantages and disadvantages of this strategy.
What I want to share with you today is the transaction I made on July 15. The details are as follows:
Short put option
- Palantir Technologies Inc (US stock code: PLTR)
- 200 option units
- Expiration: 2021-08-20
- Strike price: US$19
- The underlying stock price at the time of trading: US$21.16
- Option value: US$0.62
- Commission fee: US$1.42
- Total premium collected: US$122.58
- Berkshire Hathaway Inc (US stock code: BRK.B)
- Quantity: Sold all
- Selling price: US$279.14
A bit review of short put option strategy
First of all, if you are not sure what a short put is, you can check my previous article “Basic option strategies – long call, short call, long put and short put“, you can also view the actual operations of the short put that I have done before in “My transaction Record“.
To put it simply, short put is an operation method to look up the underlying stock. When the underlying stock price falls below the strike price at expiration, the premium will be your net profit. But I said in the previous articles that you can’t just think about making a premium when doing short puts. You should always think about the worst-case scenario and be prepared for both directions.
Why did I short put Palantir?
First of all, I am quite optimistic about Palantir’s uniqueness and the company’s development prospects. The future development should be better and better, so I personally believe the stock price will rise in the long run. In addition, I also did Palantir’s short put in June. You can check here for details. The stock price at that time was US$24 and the exercise price for short put was US$23, but this time I saw that Palantir had fallen to US$21.16. Isn’t it more worth buying?
So I plan to see if I can buy at a low level through short put. Using my strike price of US$19 and the received option premium, if the option is finally exercised, the cost will be US$18.38 per share, which is more or less as the previous low. I am very relieved of the price. If instead the option is not exercised at expiration, I still feel good to earn about 3.3% of the premium in about a month.
In addition, although I am optimistic about the long-term stock price trend of Palantir, I feel that the recent volatility of growth stocks is relatively large. In the short term, the stock prices of growth stocks such as Palantir may fall further due to the expected rising inflation pressure. Therefore, I plan to continue to open short put of Palantir to buy more at low price level if it goes down again, so this time I made a small bet of 200 shares only.
Short put tips
If you are also interested in trading short puts, there is something you should keep in mind. Try not to do short puts when the stock is rising or when it is already at a high level. Conversely, you should do short puts when the stock price is falling or preferably after a sharp drop. It is because of the following two reasons.
1. Your safety margin will be larger, the chance of the option turning in the money (ITM) is much lower, and even if you have to buy the stock due to the option being exercised, you will buy at a much more comfortable level, which is much safer.
2. More importantly, one of the benefits of doing short is to collect premium. When the stock price falls, or when the market is panic, that is, the volatility of the stock price will increase, so the value of the premium will follow to increase. So you may short put for much more option premium. When the market returns to calm afterwards, even if the stock price does not change, the value of the premium will decrease. Even if you close your position in this way, you will have a good chance of making money. Of course, I encourage you to keep your short put position until the option expiration, but everyone’s situation is different, it really depends on how you like to operate.
Reasons for selling BRK.B
I saw that Alibaba stock fell sharply last week, so I sold part of BRK.B and replaced it with Alibaba. For details, please refer to here. Today, I decided to liquidate BRK.B. The reason is similar. It’s not that I’m not optimistic about BRK.B. I just saw that recent growth stocks have been volatile, and many of them have experienced a significant decline. On the contrary, the value stocks like BRK.B are relatively stable, so I decided to take the opportunity to reserve a portion of funds and wait to see if there is an opportunity that I can buy some more promising technology or growth stocks at a low price. I still tend to invest more intensively in the stocks of companies with better growth. I think this can definitely bring better long-term returns. And now there are already three short puts in hand, including: Xiaomi, Tencent and Palantir. If you are interested, you can go to “My Transaction Records” to see, so I have to be prepared to exercise the buy orders at any time.
Comments and sharing
If you have any questions, please feel free to leave a message or comment below, I will reply you. Or if you find anything incorrect in the article, please let me know and learn from you. If you find it interesting or it may help you in any sense, please share with other people.