Here we're going to look at some samples, we're going to use General Electric. Even though currently, it's on the bottom of the dogless logs to the Dow, I wouldn't even look at the options. But let's say for some reason we happen to own it for a period time and it moved off the list. We're going to look at some option pricing just to give you an idea how this works. So we always want to go out about 30 days, today's the 21st so we're gonna get kind of close to that. We're gonna look at the February 23 option pricing here.
I already own GM I should be up in profit because this moved off the dogs less so it's gone up 10 or 15 or 20% 30 ever profit locked in and I want to add that profit by selling a call. So I sell a call 30 days out current bid Is that 16 and a quarter look at the $16 calls and a 16 $50 calls that's for each share of stock. So of course, they do this and lots of 100 you're gonna multiply it by 100. So this will be $160 $165. Or I'm sorry, this is the pricing of the stock for 100 shares. This is the actual dollar amount you would make.
So here, if I sold the $16 call, say, we don't we can sell it for 78 cents, no problem, because that's what they'll give me. A try and I get 81 cents they won't give me that. Give me somewhere in between. I mentioned this earlier, I like Gao stocks for calls and puts they're not as wild or not As crazy as NASDAQ, or some of the other markets, the spreads are not as wide. And that's where we have problems is the spreads the Commission's times you can buy a very volatile stock, it comes time to sell it, you just can't sell it at that price to make a profit and you're stuck. I've having a sell at a loss even though the stock has moved up for you.
So we're going to say Geez, at 1625, we're looking at the $16 call. If I sell the call at 16 said at 80 cents, and you multiply out by 100. That's $80. That's not too exciting. But we'll take $8 and see what we got. Easy way to figure this out.
What I do is I take the $80 and I'm going to divide that into the $16 here just to figure out what that's going to give me so basically point eight We'll just use the $80 divided by 100 is point eight divided by 16.0 5.05% is what I would make on this deal, but realize that that's pretty good, because usually I'm looking at one and a half to 3% profit. The problem is, yeah, I make 5% profit, but I'm selling it at 16. And currently, it's higher than that I'm actually losing money. So a lot of times when you do the math on this, and you can figure out the math based on some a took away the call tomorrow at 16 and you lost his 25 cents. You need to subtract that against your potential profits. So I like to do what they call out of the call or out of the money prices strike prices.
16 And a half Not going to make as much, but I'll be selling the stock at 16 and a half, rather than 16. And losing money, or the current price today at 16 and a quarter so I'm guaranteed another quarter in profit 16 and a half. Take the middle this. for math purposes, we'll just say 54. So point five, four divided by 16.5. And we're looking at about it's point 032, which I multiply by 100.
Basically 3.2% profit, not as much as the 5% profit here, but again, I'm not losing money. I'm actually making money I'm actually making an additional quarter guarantee the Celt 16.5 Plus, what they gave me up front to hold it for 30 days. So it's the stock was ready to be sold. This is how I would do the call aspects Say I wanted to buy the stock add enough to buy a put, or have somebody sell me a put. So I get the stock cheaper. Let's go across 30 days we do them 30 days out.
If somebody gave me the stock at 16 and a half they would actually give me between these two numbers will say point eight times 100 is $80. So I can take the point eight divided by the 16 and a half and that comes up the 4.8. I mean, if I do the deal, I'll make 4.8% I always assume when I'm selling a put that I'm going to be given that stock at this fixed price. And I just really must want to own the stock. I say why would I want the stock is 613 dollars and 50 cents. I could buy it today for 1625 it actually cost me more money.
Well, you have to subtract out what they gave you. So again, if I had point eight minus 16.5 is 15 point 70. That means, in essence, if I was putting the stock as soon as I did the option trade, and the next 30 days at 16, five, I picked up the stock price at 15.7, which is cheaper than today's price. So I'm actually in a better position. Now if the stock drops further drops below that 15. Seven, well, I missed opportunity.
A lot of times the stock will stay at that price or maybe even bump up a little bit. In which case, the put usually is not. The put is usually given to you, but the stock rises above 16 five, they won't Give it to you because it makes no sense. They'd rather just lose out on that money and you get to keep the premium that they gave you. Here, they can give me the stock at 16, which is less than this. So they're not going to give me as much money for that premium, but we'll take a look.
We again take the middle, point five five, divided by 16. So point five, five divided by 16 is 3.4. So not as good as this, but again, I'm getting the stock at a lower price. And if the stock did fall, they put me this stock. You take the point five, five minus 16, which is your true costs. You do that the cost of the stock is $15 and 45 cents when you multiply that out by 115.45.
So, in essence, if I have the stock close within the next 30 days above 13.45, I got some money, I got some premium, I got in stock at a pretty good price, the stock falls more than that. The deal did not work out well for me. But again, I end up owning the stock, then I sit on the stock, let it wait and wait for the move off the dogs list when I move off to the dogs list, then I get involved in the call selling aspect of the program. So whenever possible, if you have enough money into buying groups whenever the more look at the put strategies to get further discount, cheaper purchase, look at the call strategies when you're ready to sell and it's just to get a little bit more profit. If you don't have enough money to do puts and calls, because they're 100 share lots.
Don't worry this wait until you get to that point. Work, the basic strategy of buying the stock low as it moves off the list, selling it off and pocketing the profits. So that's how puts in calls work as far as the dogs of the Dow strategy works. And one final thing I need to mention, and I talked about this early on paper, trade this stuff, do pretend trading or simultaneous simulation trade, you can do it online free, you can do it pen and paper should always account for commissions and get used to doing these strategies on paper if you can do the majority of the time on paper and actually make money on paper. And that tells you that the technique can really work well for you and you have to really look at that. So don't be afraid the paper traders especially if you don't have enough money to do this and the other suggestion is When you start doing calls and puts option trading Doom in small amounts, what again, you're willing to lose.
Because if you do option trays that are too big, and the option market works against you, for whatever reason and blows up on you, you're gonna lose money and you want to get out of the market altogether. And that hurts you long term. So slowly ease into this. If you don't have much money, just through the straight buying and selling of stocks. And when you own the stock has collected dividends, don't worry about anything else, make some profits. And as you make more and more money, again, that five to 10% rule of trading, you want to do puts in call you can afford on these big companies and make profits that way.
Nice and easy to use to the system.