D.A. here again, I just wanted to check in with a quick update.
In case you missed it, on Monday, I shared an update with you on how my trade with CDLX is going.
But then I spoke to Jack yesterday and asked him to give me some pointers. I wanted to know what I could have done better.
The biggest thing he told me is that when I sold the $18 covered calls, I should have gone closer to the money.
In fact, he said that since CDLX had gone slightly above $15, I should have sold the $15 covered calls because I would have gotten a lot for them.
In hindsight, looking at this, it makes total sense.
At the time I sold the $18 calls, I was looking at it with greedy eyes: “collect a little now and when the stock goes up to $18 I’ll get a big payday.”
Jack’s advice was the opposite.
Considering the stock had already taken me for a rollercoaster ride, I should have been thinking: “collect as much as I can now to lower my cost basis”
Some Quick Math
In my last update I said my cost before selling the covered calls was $13.90.
When I sold the $18 calls expiring June 21, I collected 50¢, bringing my cost basis down to $13.40.
If I had instead sold the $15 calls with the same expiration, I’m looking back and I could have gotten about $1.00 for them.
That would have brought my cost basis down to $12.90.
I might have even sold $14 calls and gotten $1.40 for them, getting me all the way down to $12.50!
Lesson Learned
My original thought was to collect a little now and wait for a big payday later.
At the time, I thought it was the smart thing to do. And it would have worked if CDLX had been exhibiting the strength I been expecting when I first entered the trade.
But considering the stock had already faltered on me, it would have been wiser to sell closer to the money and collect a bigger premium up front.
I still wouldn’t be in the green — CDLX is currently at $8.84 — but it would have put me that much closer.
It was eye-opening to get Jack’s input and see another way I could have played this.
You can bet I’ll be thinking of this lesson with the next covered call I sell.
Ride the waves,
D.A. (Dave)
P.S. This article is Part 4 in a series. You can access the other parts starting here with Part 1.
The Hidden Lesson of My CDLX Adventure (part 3 in a series)
Ileana Wolfort | May 20, 2024
Hey traders,
A few weeks ago, I had one of my behind-the-scenes folks write about his experience using naked puts and covered calls on a stock he wanted to own.
It’s been a bit of a roller coaster for him, so I thought it would be great for you to read about how he’s taken it all in stride and made some great decisions along the way.
Read below to see how it’s going for him.
— Jack
Hi everyone,
I’ve been a bit quiet for a while, but I figured I’d check in with you again to let you know how things are going with CDLX.
If you missed the first 2 parts of this series, you can give them a quick read here: Part 1, Part 2, but I’ve done my best down below to give you a recap of everything that’s happened up till now.
Long story short: CDLX has been quite the rollercoaster ride.
I didn’t expect that when I got into it, but hey — if there’s one thing I’ve learned is that the market will throw you curveballs… and you’ve got to learn how to adjust.
To make a long story, short, here’s a chart:
Selling The Puts
Here’s a quick rundown of what you see in the chart:
First of all, the green dotted line shows the level of the $15 puts I sold.
I put that in just so show you that along the way, I’ve had several chances to close out the trade at breakeven or possibly even a small gain since time value had burned off.
On March 21st, 2024, sold 10x $15 puts on CDLX expiring April 19.
That brought in $1.10 per share or $1,100 cash instantly into my account.
Two days later, CDLX spiked up 23% in a single day and those put I had sold at $1.10 each, were now worth less than $700.
I probably should have bought them back and closed out the trade, but I decided to hold on to see what would happen.
The Crash
Overnight, the day after the huge 23% spike, Cardlytics — the company behind CDLX — announced they were going to be putting more shares out into the market.
That sent the stock crashing — 33% down in a day to be exact.
Suddenly the puts I had sold were in-the-money, but I wasn’t assigned.
A couple of days after the crash, CDLX came back up slightly above $15.
At that point, I probably could have gotten out at breakeven — but again I decided to hold on and see what would happen.
Over the next couple of weeks, CDLX wavered between $15 and about $13.
What I found really interesting is that for most of those 2 or 3 weeks, I wasn’t assigned the stock!
It wasn’t until CDLX fell to about $12 right before the options expired that I got assigned at $15.
I wish it had happened sooner, because then I could have started selling covered calls earlier, but oh well.
Selling Covered Calls
Here’s an interesting thing I did:
Rather than immediately turn around and sell covered calls, I looked at the chart and noticed that CDLX had touched the $15 level several times before retracing.
You can see that in the first 2 orange circles on the chart.
The fact that it had touched that price twice in meant to me that the $15 level was an important price point for the stock.
Since I still believed in CDLX — and because I didn’t want to sell covered calls below my cost basis of $13.90 — I decided to wait for CDLX to again hit that $15 level.
I set an alert on my platform and waited. It took 2 weeks, but CDLX went slightly above $15 again — that’s the third orange circle — and I was able to sell 10x $18 covered calls expiring in June for 50¢.
That brought my cost basis down to $13.40.
I still wasn’t profitable on this trade, but my plan to keep chipping away at my cost was working out.
Another Curveball
Shortly after I sold those covered calls, I got another curveball!
CDLX reported earnings and it didn’t go well. The stock crashed down to about $8!
Ouch! Painful, but I decided to take advantage of it. At that point, the $18 calls I sold were pretty much worthless. Great for me as an options seller.
Rolling With the Punches
While I wish the stock I owned hadn’t just crashed down, I decided to use the crash to my advantage.
I put in an order to buy back the 10 contracts I sold at 5¢ each.
I thought that was a generous offer, but the market had other ideas.
I saw asking prices as high as 40¢! Absolutely crazy considering I sold those for 50¢ when the price was above $15 and now the stock was hovering above $8.
So I decided to wait out those crazy sellers. I put in my order at 5¢ and just went off to live my life.
After all, to my way of thinking, I had nothing to worry about:
If CDLX miraculously recovered and I got called away at $18, that would be an incredible 34% profit in less than 3 months!
And if CDLX didn’t recover, then I’d keep the full 50¢ and get to sell another covered call in a few weeks.
As luck would have it, the market finally came around to my way of thinking and my standing order buy them back for 5¢ finally got filled.
It actually happened in dribs and drabs: A couple filled one day, a few filled the next day and so on — but eventually I bought back all 10 contracts at 5¢.
Where I Stand Today
That brings me to today. If you’re keeping track, my cost basis right now is $13.45.
Here’s the math on that:
I was assigned at $15. Subtract $1.10 for selling the put, that equals $13.90.
Then subtract 50¢ for selling the $18 covered call, that equals $13.40.
At that point, I bought back the $18 calls for 5¢, bringing my cost basis to $13.45.
The stock just closed today at $9.01, which means that on paper I’m down $4.44 per share or $4,444 for the 1000 shares I own.
Am I panicking? Not in the least.
The Hidden Lesson
This is the hidden lesson in this crazy trade:
If you’ve been reading Jack’s posts over the past few days, you know that he’s been discussing some of the crazy mistakes he’s made over the years.
One of those mistakes he’s mentioned is trading more than you can afford to lose.
It’s one of the surest ways of making bad, emotionally-driven decisions.
Now, don’t get me wrong $15,000 is far from pocket change to me. It’s quite a significant amount of money.
I wouldn’t like it at all if this trade went to zero, but I would still be able to sleep at night.
That single fact is the biggest takeaway I have from this trade.
If I had been trading with the grocery money or with next months’ mortgage, I would have been forced to make crazy decisions.
Instead, I’ve been able to make my decisions logically — completely detached from any emotion.
Now don’t get my message wrong: I’m not saying I’ve made the best trading decisions.
I’m sure Jack would probably have a dozen tricks he could teach me to pull more money from these 1,000 shares I own than I’ve managed to pull on my own.
What I’m saying is that the decisions I made were made from a place of logic and reason — not wild emotions.
My Plan Going Forward
Now that I own this stock, I plan to keep selling covered calls and lowering my cost basis.
I’ll sell calls above my cost basis when it pops and I’ll either get called out at a profit or let them expire worthless.
In a worst case scenario, if CDLX keeps coming down to this level, I’ll buy back the calls I sold so I can “double dip” on the pops.
Stay tuned. As long as Jack lets me, I plan to keep you updated on how this trade works out for me.
The long term view I have still shows this stock could hit $30 by year’s end. How nice would that be to keep lowering my cost basis as the stock gradually rises and then sell at a massive profit?
You’ll be receiving an email in just a few minutes with your access information.
Naked Puts: CDLX Followup (Part 2)
Ileana Wolfort | April 1, 2024
Hey traders,
Whenever I talk about naked puts… people love the idea of “selling a promise” as I like to call it…
But the conversation inevitably turns to, “Yeah, but what if I get assigned the stock?”
I’ve often talked about how hard it is to get assigned a stock, even when you want to get it assigned to you.
I’ve sometimes gone months selling put after put without being assigned.
But to give you an up-close look at how hard it is to get assigned, there’s a live example going on right now that I think you’ll find interesting.
Last week, one of my behind-the-scenes crew took over for a day to talk about his experience selling naked puts on CDLX.
A few days after he sold the put, the stock plunged 40%…
Read below to see how it’s going for him.
— Jack
Hi everyone,
D.A. here again.
If you haven’t read part 1 of my naked puts example using CDLX, I suggest you click here to read it first before continuing.
This is a trade that I’m actively in right now with 3 different accounts.
My goal in telling updating you about this trade as it’s unfolding is to show you that naked puts offer a huge opportunity for creating an income stream.
And even when something unexpected happens, as happened with CDLX last week, there’s no reason to panic or close the trade.
If you read my first article on this trade, you’ll see that if I had panicked as CDLX was dropping 43% in a single day, I would have been my own worst enemy.
Because while CDLX did drop as low as $12, it was only there for a short time — I’m talking less than 90 minutes.
Imagine locking in a several thousand dollar loss simply because I couldn’t check my emotions at the door!
Where We’re At Now
Ok so let’s talk about where this trade is right now.
Since it plunged down 1 week ago, CDLX has been below the $15 strike price put I sold for a total of 4 trading days.
For most people, this is the “nightmare scenario” that keeps them from ever trying to sell naked puts.
If you ask me, it’s more like a pleasant dream. And I’ll tell you why:
First and foremost, I believe in CDLX. I believe it is going up in the long term and that is the very first step to selling a naked put: A complete lack of fear about being assigned the stock.
Secondly, I still have not been assigned the stock. As I said in my other article, I can’t tell you exactly why that is. Maybe Jack can dive into that one day in a future article.
Third, I’ve got $1100 in my account! Don’t forget I got into this trade by selling ten $15 Puts for $1.10.
Since each put controls 100 shares of stock, that’s 100 x $1.10 = $110 per contract x 10 contracts = A grand total of $1100 cash in my account immediately upon selling the puts.
And lastly, I have a plan in case I get assigned the stock. If I were to be assigned this stock, I would immediately turn around and start selling covered calls.
No one knows what the market has in store for us next.
And while some traders might be nervous about CDLX still being below the $15 puts I sold, you can see that keeping your head on your shoulders and having a plan goes a long way towards making smart decisions.
As long as CDLX doesn’t stay grounded forever or go belly up like Enron, I’m golden.
As Jack says, I’m using a stock to create a cash flow for myself:
Selling naked puts, to bring in income.
If I get assigned, turning around and selling covered calls.
If and when I get called away, my cost basis will be dramatically reduced, which means an increased profit.
Stay tuned. I plan to keep you updated on how this trade is working out for me every so often.
Today I had 2 main goals:
First, to show you that a week after the stock dipped below $15, I still haven’t been assigned.
And second, showing you how having a plan can help me keep my emotions in check.
Remember, staying calm and collected is key to navigating the ups and downs of options trading.
Hey traders, I’m currently in the middle of writing a naked puts tutorial for you…
But yesterday, one of my behind-the-scenes helpers came to me with such a great example of a naked put he just traded, I’m going to let him take over today.
Prepare to be amazed. I know I was.
— Jack
Hi everyone,
My name is D.A.. You can call me Dave.
I’m one of Jack’s behind-the-scenes folks who helps with the website and various other things.
I’ve been working with Jack for close to a year at this point and in that time I’ve learned a tremendous amount from him.
He’s actually the reason I’ve been using covered calls and naked puts in my trading.
When I heard Jack was going to be doing a tutorial on naked puts, I originally didn’t think I had much to add.
After all, Jack is a professional with nearly 40 years of experience and I’m just getting started in my trading journey.
But this past Thursday I sold 10 naked puts with a $15 strike price on stock ticker CDLX for $1.10.
Since each contract controls 100 shares, that means I collected $110 per contract.
And $110 x 10 contracts = $1,100.
That $1,100 hit my account instantly!
I’ve sold naked puts before, but this was the most I’ve collected in a single shot… What a feeling!
For the next couple of days, the stock was rising — away from the $15 puts I had sold, and towards the target I was expecting.
This Monday, it actually jumped 27% in a single day!
Things were looking great!
Uhoh!
And then something completely unexpected happened.
To make a long story short, before the market opened on Tuesday, CDLX announced that they were essentially selling more shares. (that’s not the technical term, but I’ll just leave it at that to keep it simple.)
This caused investors to start selling the stock like crazy.
What did that do to the stock price? Take a look for yourself:
Between the pre-market and the first hour of trading, the stock tanked 41%!
To say I was shocked is an understatement.
But that’s when Jack’s advice started ringing in my ears.
He always tells us to have an exit plan BEFORE we enter a trade.
And thankfully I followed that advice before I ever entered this trade.
I like CDLX. I believe in it for the long term. That’s the only reason I sold naked puts on it in the first place.
So even though it dumped off massively, I stood my ground.
It ultimately found support above $12 and climbed back throughout the day yesterday.
Today, I’m happy to report the stock is at $14.46 as I write this and looks like it’s continuing to rise.
And while no one knows what the future holds, I am completely confident because of the lessons I learned from Jack.
Lessons Learned
Don’t Panic! – When I woke up Tuesday morning and saw CDLX dropping like a rock, I was shocked. But I did not panic! Imagine what situation I’d be in if I sold at the bottom.
I would have paid twice as much to close the trade as I originally collected to get into it and I’d be kicking myself right now!
Instead, I stayed calm and remembered that I only sold this put because I was comfortable owning the stock.
Own It – Jack always tells us we should NEVER sell a naked put on a stock that we’d be afraid to own. If you get assigned the stock, you should be happy. That means you picked up the stock at a discount.
In the case of CDLX, I received $1.10 per share to own CDLX at $15. If I subtract $15 – $1.10, that gives me a cost basis of $13.90 if I was to be assigned. (more on that below)
Still haven’t been assigned – To keep things simple, I didn’t mention this before, but I actually sold a total of 30 puts across 3 different accounts.
And despite the fact that we’ve dipped below the $15 strike price of the puts, and I have 30 in-the-money puts outstanding, I still haven’t been assigned the stock!
I’m still too much of a newbie to tell you why. Maybe Jack can weigh in on that in the future. But to my understanding, early assignment* is fairly rare, since most options are bought and sold rather than executed.
*Early assignment refers to the fact that you can be “put” a stock before the expiration date if the option buyer decides to exercise that option.
Sell covered calls – If I were to be assigned the stock, the very first thing I would do is sell calls against the stock. Jack wrote a couple of articles about this which you can find here.
It’s essentially the opposite of a naked put. When you own a stock, you can sell people the right to “call it away from you” at a certain strike price.
And when you sell that right, you collect instant cash, just like I did when I sold the naked puts.
This ends up reducing your cost basis even further!
Above, we talked about how my cost basis is currently $13.90.
If I were to be assigned the stock at the $15 strike price that I sold, I could sell a covered call for $1.00, and my cost basis would go down to $12.90.
By continuing to sell covered calls, I would keep lowering my cost basis.
Closing
Jack has told me that in all his years of trading, naked puts are one of the things that scare people the most.
So I hope I’ve managed to ease some of the fears you may have had about naked puts.
But it’s not just about blindly choosing to be brave. As you saw above, I was able to be brave because of the work I did ahead of time.
I didn’t simply sell a naked put on a stock that offered me a high premium.
I picked a stock that I fully believed in and would not mind owning if push came to shove.
Even more important, I think, is the idea that you need to pick your exit plan ahead of time.
Knowing that I had the cash on hand to cover being “put” the stock stock allowed me to execute my plan with extreme confidence.
Which leads me to my final lesson I’ve learned about trading: Don’t get in over your head.
If worse comes to worse, I don’t want to lose several thousand dollars. But I am not trading with tomorrow’s grocery money or next month’s mortgage payment.
I’m only trading with money that I’ve specifically set aside for learning and growing as a trader.
Remember, I’m still a student in this game.
But thanks to Jack’s guidance and this ride with CDLX, I feel a whole lot more confident about navigating the options market, even when things get bumpy.
This experience was a great reminder that knowledge is power, and a well-defined plan is your best defense against unexpected turbulence.
Ride the waves,
D.A. (Dave)
P.S. This article is part 1 in a series. You can access Part 2 here.
Looking for a strategy that works in a bullish or bearish market? Click here to learn more about Jack’s Trojan Horse Trade Alerts
About Jack Carter
Ileana Wolfort | November 18, 2020
Welcome to Jack Carter Trading! Please allow me to properly introduce myself… My name is Jack Carter, I’ve been a professional trader for over 36 years now. Back in 1984 when I first began my career as a Wall Street trained broker I never imagined I would be here today… With the privilege of being able to help thousands of people all over the world become better investors.
I’ve been very fortunate to experience a great deal of success during my career… With over a BILLION DOLLARS of trading volume under my belt… But my success didn’t happen overnight, it took a lot of hard work and determination. Which is why I’ve made it my mission to help others achieve their financial dreams and avoid the pitfalls I had to encounter along the way.
