Legging into Verticals

The past week has been tough on IOC bulls.

I took the opportunity to buy calls struck $5 beneath the calls I had sold before, spending less than I took in on the original covered call sales.  It’s an easy way to lock in some profit, and leave the potential for more profit later.

Taking the example of the March $65 calls I said I’d sold before just under $10 each, during the bloody correction on Thursday and Friday, I bought March $60 calls for just over $8 apiece.

If IOC keeps going down, both the $60’s and the $65’s can expire worthless, but I’ll have a buck and a half per share in profits anyway.  If IOC recovers and goes back over $65 for the close in March, I’ll collect another $5 a share, less commissions, on top of the existing profit.

Seeing that the stock chart is a little “sick,” I decided I wouldn’t mind having the stock called away in three weeks, so I also sold some Feb $65 calls against the stock.  As of Friday, that was looking like I was bailing with a bucket while water came in at twice the rate I could bail, but at least I lowered my cost basis on the remaining position by another few dollars.

Today, the stock is either bouncing for a reason, or adjusting for the incredible speed it fell with the proverbial dead dog bounce (who says cats should have all fun?).

I did note that natural gas went down all last week, and recovered a little today, but it seems silly to reprice this stock on the daily wobbles of that commodity, given the fact that actually delivering LNG to the market is still years away.


I do like having an IOC option position that is either a small profit or a large profit, and I like the lack of capital needed to support that position until it matures.

Just another way to play these high-volatility stocks and turn them into income.



Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: