Trade Alert: From the Wellhead to the Market

By Ari Charney • February 26, 2018

What’s in it for you?

Enterprise Products Partners LP (NYSE: EPD) is not only the largest master limited partnership (MLP), it’s also one of the most financially conservative. Unlike many of its peers, EPD typically retains a significant portion of cash flow to reinvest in future growth.

Now, it’s going even further by retaining even more cash flow, so that it can move toward fully self-funding the equity portion of its capital program by next year. While distribution growth is slowing, these moves further support a strong balance sheet and an already ample distribution coverage ratio.

This trade will generate immediate income of $40 per contract now, with the possibility of buying this high-yield MLP at a 10.7% discount to where it currently trades if the stock gets put to you. Investors should set aside $2,300 per contract sold to buy the stock in case the option expires in the money.

How to Make the Trade:

Trade: Sell to open the June 15, 2018, $23 Put on EPD.
Allocation: Sell one put for every 100 shares you would be pleased to buy at $23 per share.
Prices:
- Current Stock Price: $25.76
- Sell to open the June 15, 2018, $23 Put (bid/ask): $0.35/$0.45
- Set a limit order based on the midpoint of the bid/ask spread: a credit of $0.40.
- Tell your broker: “I want to sell a put on Enterprise Products Partners LP (NYSE: EPD) stock. Specifically, I want to ‘sell to open’ one June $23 Put for a credit of $0.40 per share or more.”
- If the option price changes, you can adjust our recommended limit based on the midpoint of the bid/ask spread, which you should be able to see when entering the trade. Just make sure the potential credit is at least $0.40 per share or more.

The Win-Win Situation:

For every put contract you sell, you will collect $40 that’s yours to keep no matter what happens in the future.

If the put expires worthless, meaning the stock price is above $23 per share at expiration, then we’ll do another trade to create another instant payment.

If the stock is trading at or below the strike price upon the contract’s expiration, then you’ll be buying this high-yield MLP at a 10.7% discount to the current market price, while locking in a yield of 7.4%—plus the premium you pocketed when you sold the put.

Stock Talk

Comments Oldest First

Comments Guidelines

Maurizio Trombetta

02/26/18 ‐ 2:50pm ET February 26, 2018 at 2:50pm ET

Hi Ari.. First time investing online
I’m not sure how to enter the trade with Schwab.. I want you to send a screenshot so you can review if everything is ok
Any contact mail

Thank YOu

Ari Charney

02/26/18 ‐ 4:06pm ET February 26, 2018 at 4:06pm ET

Hi Maurizio,

Unfortunately, I can’t provide that kind of personalized guidance. Please contact your broker for assistance.

Ari

Roger Rittenhouse

02/26/18 ‐ 3:32pm ET February 26, 2018 at 3:32pm ET

Hello,
I placed this trade an hour or so ago and it’s yet to be filled. Is this normal?

Thanks

Ari Charney

02/26/18 ‐ 3:42pm ET February 26, 2018 at 3:42pm ET

Hi Roger,

That can happen as prices fluctuate. EPD caught a modest bid in the late afternoon, so the bid/ask spread moved slightly lower.

One general guideline is waiting 30 minutes after the initial order, then adjusting the limit lower in small increments, while keeping in mind the minimum income you’d want the trade to generate.

Alternatively, tomorrow may provide another opportunity to fill at $0.40 or better.

Ari

Asjad Shamim

02/26/18 ‐ 5:22pm ET February 26, 2018 at 5:22pm ET

Hi Ari,
My broker screwed me up in a sense they still has not approved the level of trading to put sell option. I am working with them. They told me to check tomorrow.
So if get enabled by broker to trade, are above guidelines still hold for strike price and limit credit of $0.40?

Ari Charney

02/26/18 ‐ 7:12pm ET February 26, 2018 at 7:12pm ET

Hi Asjad,

That’s fine. Remember that prices change. You may be able to get an even better price. But the important thing is try to get a net credit of at least $0.40 per share.

Ari

Draco Visor

02/27/18 ‐ 5:24pm ET February 27, 2018 at 5:24pm ET

Hi Ari,

Let me start by saying I like the strategy you have outlined here in this program, as it feels very safe, and should generate consistent winners over the long run, with a back up plan in case the stocks get put to us. But it seems this strategy will be a slow build for those with less start-up capital, as we have to stick to lower numbers of contracts. Safe companies and strike prices well under the current market price = lower credit values.

I have some more capital at my disposal, but most of it is already tied up in investments. I have concerns converting a large sum to cash, to sit for months for a “just in case”. Would you recommend investing in a trading account where most of the money is already in investments, and could be converted over if something gets put to us? This would probably be trading on margin vs. purely on cash. I’m curious about your insight on this.

Still making my way through all your articles so I can learn as much as I can before diving fully in.

Thanks

Ari Charney

02/28/18 ‐ 10:22am ET February 28, 2018 at 10:22am ET

Hi Draco,

While we recommend selling cash-secured puts, the decision over whether to go this route or use a margin account is ultimately up to the individual investor.

Though using margin frees up significant capital–generally only 20% to 25% of the potential cost of the investment would need to be kept in reserve–the potential downside is the forced liquidation of other securities you hold to raise cash.

Ari

Sally Modzelewski

02/27/18 ‐ 6:29pm ET February 27, 2018 at 6:29pm ET

Ari,
I have limited capital and do not want to purchase any stocks. If current stock price is below the Put price at expiration, is there any other trade strategies for us to prevent owning the stocks?.

Ari Charney

02/28/18 ‐ 9:59am ET February 28, 2018 at 9:59am ET

Hi Sally,

Yes, you could roll the put to avoid assignment. That would entail buying back the original put and then selling another short-term put at a lower strike. While this action would lower the overall net credit of the original trade, it would also avoid stock ownership. Though I had not originally intended to make that a core part of this service, I am now considering it depending on the situation.

Ari

Asjad Shamim

02/28/18 ‐ 1:06pm ET February 28, 2018 at 1:06pm ET

Hi Ari,
That would be awesome !!!
If your alert can also account for roll if we do not want to own stock it will help a lot.
I also do not have much capital to purchase more than 1 stock per 1 contract at a time if we are put to purchase stock more than 1 at a time.

This will help greatly 🙂

One question. Are you planning to include expiration as well in terms of execute the alert by x date?

Unfortunately my broken has not enabled me yet. So far I have Level 1 and 2. Trying to get Level 3 so still working. So far I still have not execute any trades from you 🙁
Looking forward to get Level 3 access to start trading form next week.

Ari Charney

02/28/18 ‐ 3:23pm ET February 28, 2018 at 3:23pm ET

Hi Asjad,

I’m still considering the various instructions to add to trade alerts. But in general, I’m thinking the trades would be valid for one week.

Ari

Jeffrey

02/28/18 ‐ 10:10am ET February 28, 2018 at 10:10am ET

Hi Ari,
I like the idea of using put to buy value stock with good dividend payout at a low price.

How many trades alerts do you typically publish every month? Besides single option, will there be other types of trades such as credit spread?

We also need to set aside money for potential assignment. Am I right to say that is only required when the option is exercised at the expire date? Can I count on your team to monitor all trades near the option expire date, and recommend us either to roll the option or to own the stock? I can simply sleep well 🙂

I asked just because here I can’t find enough “historical” alerts. Happy to invest with you. Thanks a lot.

Ari Charney

02/28/18 ‐ 10:31am ET February 28, 2018 at 10:31am ET

Hi Jeffrey,

We will be publishing three to four trade alerts per month.

Although we don’t do spreads, Investing Daily publishes another newsletter that specializes in spreads:

https://www.investingdaily.com/options-for-income

Selling cash-secured puts means setting aside the potential capital to buy the stock until expiration. While we recommend selling cash-secured puts, the decision over whether to go this route or use a margin account is ultimately up to the individual investor.

Though I had not originally intended to make rolls a core part of this service, I am now considering it depending on the situation.

Ari

Ajax

02/28/18 ‐ 2:39pm ET February 28, 2018 at 2:39pm ET

Not sure you need a confirmation of this Alert. But mine executed at the .40 at 2:30pm today.

Ari Charney

02/28/18 ‐ 3:19pm ET February 28, 2018 at 3:19pm ET

Thanks for confirming the fill.

Dmann

02/28/18 ‐ 2:45pm ET February 28, 2018 at 2:45pm ET

EPD filled at .40 cr on thinkorswim

Ari Charney

02/28/18 ‐ 3:19pm ET February 28, 2018 at 3:19pm ET

Thanks for confirming the fill.

Jeffrey J

03/01/18 ‐ 10:33am ET March 1, 2018 at 10:33am ET

EPD filled @ $0.40 on TradeStation, yesterday.

Ari Charney

03/01/18 ‐ 10:37am ET March 1, 2018 at 10:37am ET

Thanks for confirming the fill.

Les Milne

03/01/18 ‐ 11:09am ET March 1, 2018 at 11:09am ET

I have, today, just joined your scheme and am fairly new to Options Trading. I have put an order in with IB to sell the $23 Put on EPD – limit of 0.43. I assume that it is not too late for this order?
Regards
Les Milne – UK

Ari Charney

03/01/18 ‐ 11:13am ET March 1, 2018 at 11:13am ET

Hi Les,

Welcome–and it’s not too late to participate in this trade.

Ari

Roger Rittenhouse

03/01/18 ‐ 11:33am ET March 1, 2018 at 11:33am ET

EDP Filled @ 0.45
SEP filled @ 0.55

Ari Charney

03/01/18 ‐ 4:08pm ET March 1, 2018 at 4:08pm ET

Thanks for confirming the fill.

Ari

Jeffrey

03/02/18 ‐ 6:11am ET March 2, 2018 at 6:11am ET

Filled these trades on 28-Feb, DUK @ 0.7
EPD @ 0.4, credits went up next day as the market wend down.

Ari Charney

03/02/18 ‐ 11:25am ET March 2, 2018 at 11:25am ET

Thanks for posting your fills.

TC Investments

03/05/18 ‐ 10:05pm ET March 5, 2018 at 10:05pm ET

Ari :

What is the worst case scenario for this trade . Say BPL rises to $52 prior to expiration ? Then what happens to the premium I collected when I sold the put on BPL . Do I still keep the premium but loose the right to buy the stock at $40 ?

Ari Charney

03/06/18 ‐ 4:32pm ET March 6, 2018 at 4:32pm ET

Hi,

If BPL is trading above $40 per unit at expiration, then the put would expire worthless and we get to pocket the premium without having to buy the stock. That would then free up our capital to sell another put and generate more income.

If, however, BPL is trading at or below $40 per unit upon expiration, then we’d have the obligation to buy 100 units per contract sold at the $40 per unit strike price. At that point, we’d start collecting the distribution, wait for the stock to appreciate again, and then sell covered calls against the stock to generate more income until the stock gets called away.

Basically, we’re trying to create a situation we’re either scenario would be good because each gives us a different set of income-generating opportunities.

Ari

"DG"

03/06/18 ‐ 9:36pm ET March 6, 2018 at 9:36pm ET

Ari,
I’m a new member and trying to wrap my brain around the worst case scenario. So, in the BPL scenario what if the stock never recovers after dropping below $40 or goes bankrupt? Is there a chance we could lose our entire investment? Do you have any stock screening/filtering process to decrease the chance of a worst case situation?

Ari Charney

03/06/18 ‐ 10:02pm ET March 6, 2018 at 10:02pm ET

Hi DG,

We only sell puts on stocks we’d be comfortable owning anyway. So that means we use proprietary screens and fundamental analysis as part of our research.

In the case of BPL, it’s a longtime holding of our sister service Utility Forecaster. And during that time, it’s survived multiple downturns, including the last energy crash.

While we’re comfortable having these stocks put to us, we also set strikes at significant discounts to allow ample room for any downside volatility to play out.

Ari

Asjad Shamim

03/07/18 ‐ 10:51am ET March 7, 2018 at 10:51am ET

Hi Ari,
Would we have any new stock alrert targeted this week?
Reason for asking…. Finally got access to Level 3 to be able to trade put sell trading. Took forever though 🙁

Excited to start trading now.
So curious to see if there any alerts planned to sent out soon?
or Is EPD too late to jump in?
Was looking, and it seems the bid/ask is hovering over now 0.50.
So please advise whether its late to jump on EPD with your instructions above with only limit price change to $0.50?

Thanks.

Ari Charney

03/07/18 ‐ 2:08pm ET March 7, 2018 at 2:08pm ET

Hi Asjad,

I’ll be publishing a new alert later this week.

The EPD trade is still valid as long as the potential income, as well as the possibility of having the stock put to you, still fit your parameters.

The market’s volatility over the past week has caused EPD’s price to drop, but it still remains about 8% above the strike price. At the same time, for that reason, the potential income from selling the put is now higher.

Ari

SLHLLC

03/09/18 ‐ 7:46am ET March 9, 2018 at 7:46am ET

Ari:
I had some delays setting up a specific account to follow your recommendations. When I did try to place the orders you originally recommended (granted now 10 days later), the bid/ask ratio was unavailable. Is that something that changes as the stock price changes? If so, does that then affect the credit per put?

Ari Charney

03/09/18 ‐ 10:39am ET March 9, 2018 at 10:39am ET

Hi,

Fluctuations in the prices of the underlying stock will also cause prices of associated options to fluctuate too.

A bid/ask spread is always available, but will similarly change over time.

The EPD trade is still valid as long as you can generate a minimum credit of at least $0.40 per share or more. You may be able to do better than that based on where the bid/ask spread is presently.

Also make sure that the strike price, at $23, is at a discount to the current share price that’s still within your comfort zone.

If you’d prefer to wait, I’ll be publishing another trade later today.

Ari

Bashir Lalani

03/09/18 ‐ 12:55pm ET March 9, 2018 at 12:55pm ET

ari,
I see your last trade alert on Feb 26, 2018. have you since sent any more alerts? I was told one trade alert will come from you every Friday. I haven’t seen one on March 2 nor today Mar 9, 2018.
am I missing something? I signed up a little over 2 weeks ago, my brokerage account is all good to go.
please enlighten me about your alerts.
thank you,
Bashir

Ari Charney

03/09/18 ‐ 1:36pm ET March 9, 2018 at 1:36pm ET

Hi Bashir,

In fact, I was working on the latest trade alert when you sent your message. You can see it on the home page now.

We plan to do about three or four trades per month, generally about one per week with the occasional off week.

There is no set schedule for these trades. So a new trade could go out on a Monday, as it did last week, or it could go out on a Friday, as it did this week, or any day in between. Regardless of when the trade is published, you’ll receive a trade alert via email.

Ari

HoLa

03/14/18 ‐ 2:00am ET March 14, 2018 at 2:00am ET

Hi Ari,
I would like the roll strategies if needed due to the small account. Also if I don’t have enough fund to buy the stock when the option is exercised at the expired date will the broker close or ceased my account? please advise. Thanks.

Ari Charney

03/14/18 ‐ 6:57pm ET March 14, 2018 at 6:57pm ET

Hi,

Depending on the situation, we will consider rolling for certain trades. However, rolling is not a core part of this strategy, and I don’t know if we can offer two parallel strategies at the same time–one that involves rolling and one that involves taking ownership of the stock.

Remember: If the stock gets put to us, we can generate more income by collecting the dividend while selling covered calls against the stock.

We recommend having the cash necessary to buy the stock in case it gets put to you. If you’re trading on margin and do not have the necessary funds to buy the stock, your broker will require you to add money to your account or liquidate other securities.

Ari

ETKTRIDE

03/15/18 ‐ 1:25pm ET March 15, 2018 at 1:25pm ET

EPD filled @ $.75 CR – IB

Add New Comments

You must be logged in to post to Stock Talk OR create an account