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Costbasisreduction

ASSIGNMENT: NIO SHARES/NIO FEBRUARY 21ST 5.5 COVERED CALLThis is a continuation of long-running trade that I kicked the can on. (See Post Below). With price finishing the day wayyy below my 10 short put, I will find shares in my account next week via assignment. In anticipation of that occurring, I previously sold a February 21st 5.5 call and have a cost basis of 5.22. I'm fine with being called away at 5.50 should that occur, but will continue to reduce cost basis in the stock going forward if that doesn't happen. Delta/theta: 62.98/.81 Extrinsic: .34.
NYSE:NIOLong
by NaughtyPines
3
CLOSING: XOP MARCH 20TH 24 SHORT CALL... for a .05 debit. Notes: Scratch at 8.45. Will look at rolling out the 21P, 31P next week and then re-upping short calls to cut net delta and reduce cost basis further. Alternatively, I can just wait and see what happens running into expiry, with the most likely outcome that I get assigned on at least the 31 and possibly on both the 21 and 31, with the obvious advantage to staying in the options being the buying power effect as compared to being in the stock.
AMEX:XOPLong
by NaughtyPines
4
CLOSING: XOP MARCH 21ST 27 SHORT CALL... for a .05 debit. Notes: Here, just stripping off some approaching worthless short call. Because my scratch here is 8.59, I'm not going to do a ton further with it running into March expiry, except to strip off "approaching worthless" options. This is because the most likely scenario is assignment on the 31 short put, where my cost basis is 31 minus 8.59 or 22.41 versus 21.89 spot. I'm fine with that, since the underlying is toward the end of range lows.
AMEX:XOP
by NaughtyPines
TUTORIAL: BUYING POWER EFFICIENT CC OVERWRITINGLet's face it. Being in a net delta long covered call in a market downturn can blow. Typically, the vast majority of covered calls are 70-80 net deltas long per one lot, depending on how aggressive your are with your short calls. There are a number of solutions to cutting that net delta to something more tolerable: (a) sell calls; (b) sell short call verticals/diagonals; (c) buy long put verticals/diagonals; or (d) drive your short calls to at-the-money or into-the-money. This post discusses overwriting your covered calls with short call diagonals. While selling calls against is the most straightforward of approaches, many brokers won't allow naked call selling, particularly in cash secured environments like IRAs. Moreover, selling naked against may not be the most buying power efficient of approaches. The short call diagonal not only provides a work-around to the "no naked call" prohibition, it may also afford some buying power relief over going naked. Pictured here is a laddered, short call diagonal, overwrite setup (say that quick three times) in the September, December, and March expiries of SPY with the short options camped out at their respective 20 delta strikes, the longs at "cheap." It pays 6.31 in credit, has a theta of 5.49, and is -53.77 delta. It's naturally applicable to any underlying and can be modified to afford you the amount of overwrite/delta-cutting that you want, even where you're not in a one lot.* You can naturally also just ladder out short call verticals with the short legs at the 20's and the longs at "cheap"; my preference, however, is for getting into the longs once so that I can work the calls as though they were naked if they have to be managed, as opposed to managing a spread. Moreover, I can leave the longs alone throughout the life of the setup and re-use them even if they're no bid as buying power effect cutters, thus saving a bit on fees, since I'm only in and out of a single contract, as opposed to two, as I would be with a spread. As usual, there are pluses and minuses to the setup. The pluses: (1) it flattens net delta, thus smoothing out your P & L in a downturn; (2) it provides additional cost basis reduction on top of any dividends you might be receiving by being in shares and/or with the short calls you've already got covering your shares. The minuses: (1) It ties up buying power to the extent of the width between the short call and long call strikes minus any credit received; (2) the additional short calls have to be managed if tested. * -- For example, the pictured setup would flatten the net delta of a 53 share SPY position to virtually flat, since 53 shares of SPY are 53 delta long and the setup is 53.77 short.
AMEX:SPYEducation
by NaughtyPines
OPENING: MU MARCH/JUNE 34 PUT CALENDARDecided to do something slightly different in Micron than an upward call diagonal (See Post Below) ... . Here's what's important about this trade: Max Loss on Setup: $151/contract Max Profit on Setup: Indeterminable Front Month Value on Setup: $253 credit Back Month Value on Setup: $404 debit Theta: .99 Delta: 2.92 In a nutshell, it's a fairly delta neutral, theta positive setup, with the goal being to reduce cost basis in the trade by rolling out the short aspect for additional credit. I would note that calendars are traditionally considered a low volatility environment setup, with the calendar being placed in a manner that would accommodate a volatility expansion and/or downward movement (i.e., out of the money and on the put side). In contrast, this is just a cost basis reduction setup that doesn't require the expansion or the movement ... .
NASDAQ:MU
by NaughtyPines
10
TRADE IDEA: WFT JULY 15TH 4/6 SHORT STRANGLEThis is part of a small WFT covered call I'm working ... . The strategy here is to continue to reduce cost basis in the underlying shares. Here I'm doing it with a July 15th 4/6 short strangle in an attempt to sell premium while the implied volatility is still high ... . Metrics: Probability of Profit: 63% Max Profit: $61/contract Max Loss/Buying Power Effect: Undefined/~$50 (in this particular case, the max loss is actually governed by the fact that the stock price cannot go below $0, so the max loss is actually $400 (the short put strike x 100 shares ($400) minus the credit received for the short call $61 or $339).
W
by NaughtyPines