With less than three weeks left, and the stock behaving well, I reversed the options strangle trade I put on a few weeks ago.
To be precise about it, the order I had put in to cover (buy back) my sale of puts and calls filled at a price that I had set some time ago.
Keeping things simple, I had decided when I entered the trade that if I could get half or more of the potential profit while the trade still had meaningful time left in it, I would take the profit and run.
Since I had taken in a bit more than $11 for selling March $60 puts and March $65 calls, the maximum profit I could get on the trade was the $11.40 in gross premium I took in, less costs.
By putting in an order to buy the strangles back for $5.50 apiece, I should be able to capture half the potential profit, even if hyenas in the option pits filled me only one contract at a time. As it happens, they filled all of them, and I am happily moving on to the next trade.
I wonder if the stars will align just right, and the stock will close at $65 or above three Fridays from now? That would be sweet, given the fact that I own $60 calls and sold $65’s in another trading account.
That position came about from “legging into” a negative cost basis vertical spread and selling out the underlying stock from a seasoned covered call position.
IOC been very, very good to me. But I still don’t want you to try this at home.
Selling “naked” volatility is a great game until it fails, and when it fails, it can be so bad that retirement plans are canceled.
On the other hand, selling covered volatility can be nearly as much fun, and it’s so conservative that you can even do it in an IRA.