RJ Hamster
♟️ How I Found a 40% Discount and Collected…
“HPE’s guidance miss was about growth rate expectations, not business quality. That gap is where the trade lives.”
Karim Rahemtulla, Co-Founder, Monument Traders Alliance
Dear Reader,
When HPE released its forward guidance, I pulled up the numbers.
The stock was selling off hard. Most people stopped there. I kept reading.
Growing revenue with strong cash flow.
A 10% dividend hike announced.
Three billion dollars in new buybacks on the same day.
And a valuation, after the sell-off, of roughly 10 times 2026 earnings.
That is not a broken company. That is a cheap one.
Last week, I walked you through the basics of put selling. Today, I’m going to show you my four criteria for choosing a stock and how I applied them in a trade I closed out yesterday in HPE.
Criteria 1: A quality company I want to own.
HPE is a server, cloud, and networking company with real earnings, real cash flow, and growing AI server demand.
Management announced a 10% dividend increase and $3 billion in additional share buybacks on the same day the stock sold off. Companies do not announce dividend hikes or buybacks if their balance sheets cannot support them.
The guidance miss was about growth rate expectations, not business quality. HPE guided for 5% to 10% revenue growth in fiscal 2026. Wall Street wanted 17%. That gap created the sell-off. It did not change the company’s value.
If I had been assigned shares at $13, I would have been comfortable holding them. That is the filter. If you would not buy the stock outright, do not sell the put.
Criteria 2: A discount of 20% to 50% below market.
After the sell-off, HPE was trading around $22.50. The $13 strike I recommended was over 40% below that level.
The strike price is the price you agree to pay for the shares if they are assigned. The further below the current price you go, the more cushion you have.
At $13, HPE had to fall more than 40% from its trading level and hold there through January 2027 for the assignment to become a real problem.
At $13, you are buying HPE at roughly 6 times 2026 earnings. That is near panic-sell-off territory for a company growing revenue, raising its dividend, and buying back stock.
Criteria 3: Probability of assignment under 25%.
The probability of assignment is a number your broker displays on any options chain. It tells you the probability that the stock will close at or below your strike price at expiration. On this trade, it came in under 20%.
The deep discount is what gets you there. You cannot achieve a probability below 20% by selling puts close to the current price.
The 40% cushion is what creates the low probability. Criteria two and three work together every time.
Criteria 4: Position sizing. Every trade.
You never know when a stock will move fast enough to put you in the shares. I include position-sizing guidance on every put sell I present to War Room members. No exceptions.
If the position is too large, an assignment ties up capital you need elsewhere. The put seller who compounds steadily and the one who blows up are often running the same strategy. The difference is almost always this.
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The trade.
War Room members sold the HPE January 2027 $13 puts for between $0.60 and $0.65 per contract. The last fill that day was $0.70 in mid-October of last year. That premium was theirs the moment the trade was placed.
HPE never came close to $13. Members closed by buying the puts back for between $0.25 and $0.30 yesterday. Return on premium came in at over 50%.
Return on premium measures what you kept relative to what you originally collected.
Collect $0.65, buy back at $0.28, keep $0.37. Return on margin, which is the capital your broker requires you to set aside to make the trade, came in at over 30%.
Why a sell-off is the best environment for this strategy.
When a stock drops hard on news, two things happen at once.
The price falls, which increases the distance between the current market price and your strike. More cushion, lower probability of assignment on the same premium collected.
Implied volatility rises. Implied volatility is the market’s measure of expected price movement, and it directly inflates the premium you collect when you sell puts. Fear in the market means more income for the seller.
That day delivered both. The guidance miss sent HPE lower and pushed implied volatility higher. The premium reflected genuine fear. War Room members collected it.
YOUR ACTION PLAN
Option sellers collect a premium that is almost always priced above the actual risk.
A sell-off makes that edge larger. The four criteria are what keep you positioned to take advantage of it.
Stay tuned, because in the coming days, I’m going to share with you how I’m using this to take advantage of a massive opportunity I see in the market right now.
More on that soon. But in the meantime…
Tomorrow at 2 p.m. ET, I’m going on Monument Traders Live to share more tips on how to use put selling to your advantage… especially during earnings season. Add the session to your calendar here.Want more content like this?
TESTIMONIAL TUESDAY
Here are some War Room Members who also profited on the HPE put sale trade.
“Just closed out HPE. sto HPE 20270115 $13p @ $0.66 ave. btc @ $0.29 incl fees. Keeping 56.8% of the premium! Thanks, @Karim!”
– TeeUp18, The War Room Member
“I was in jury duty when this came out, but exited at .28.”
– SMarsh, The War Room Member
“BTC @0.30$ IBKR Thanks Karim!”
– F_Milan68, The War Room Member
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