Don’t try this at home.
Hopefully my temerity will be enough for the action junkies in the crowd to enjoy watching without risking their own money.
I’ve been watching the IOC drama for a couple of months now, and I was feeling a sense of withdrawal (and satisfaction) at being out of the name, except for the negative cost basis vertical call option spread I mentioned the other day.
Anyway, it looks to me like IOC has defined a (wide) trading range, albeit a range with huge potential for swing trading for the true gamblers.
It will most certainly break out of this range when the next real news comes. That news could be about financing the natty gas terminal they’ll need, about liquid distillates of various sorts they figure out how to extract, or some political development. I think it’s beyond silly for this stock to trade on the daily Henry Hub delivery price, but there seems to be some element of that going on, as well.
To my chart-watchers’ eye, though, I think I can see a relatively safe play out to the March expiration. (I know, not much courage of my convictions, but if the money’s good, why not stop there?)
Here’s where the play ends up:
Either I keep up to $11 a share in pure profit from selling options.
I end up short the stock at a net price of $76 a share in March.
I end up long the stock at a net price of $49 a share in March.
I did this by executing one of the more dangerous plays in option land. I sold “naked” calls and “naked” puts.
The total premium collected was $11.40 per share for selling March $60 puts and also selling March $65 calls. I keep the whole $11.40 (less commissions) if the stock ends the March series between $60 and $65.
If IOC ends below $60, someone will no doubt sell me stock at $60 a share, but I’ll keep the $11+ to soothe the pain.
If IOC ends above $65, I’ll be short and have to pay to borrow the stock until I cover. At least I’ll have those option premium dollars in the account, again to soothe the pain.
My logic for this trade is that I would be happy today if I owned the stock having paid $49 for it, and I would be willing to hold onto it for more upside. I would also be happy today if I had shorted the stock at $76 a couple of weeks ago, and I’d be watching it for signs of a reversal of its recent correction to cover and take my profit.
I wonder how I’ll feel about it six weeks and a day from now?
We’ll see. Good luck to us all.