10% in Seven Weeks?

If you’re bullish on IOC, that’s what’s being offered for writing covered May $70 calls.

Technically seven weeks and a day, but it really is only 35 trading days (50 calendar days) until expiration.

If I didn’t already have my short strangle position, I’d be tempted to buy the stock here around $68 and sell the $70 call options for $6.  Getting called at $70 in May would hit my “home run” territory of more than 100% annual return.

But what if the stock heads south again?

Here’s where volatility is my friend.  If it goes to the low $60’s, there’s a good chance I could sell the $60 or $65 put for another meaningful premium, like $5 or $6 a share, or if I’m absolutely nutso bullish, I could buy the $65 calls as soon as I could get them by paying only $5 or so.

Either play adds to the bullish position of the trade, but the latter gives me the freedom of owning the stock no matter what happens with the options.

But I already had a position, and the move upwards toward $70 a share today made my balanced position slightly bullish (because the $70 call was at that point more likely to get exercised than the $60 put).

To move to the bearish side of the ledger, I took the opportunity today to buy $65 puts for a couple bucks less than I got for selling the $60’s.  Now I’m set up for another $5 a share profit if the stock heads south in May, and all it cost me was some of the potential profit from the sale of the May 60’s earlier this week.

I am exposed to a short squeeze that could be very painful if the stock just keeps going up, so I’ll watch carefully, and probably buy the underlying if the stock blows through $75 a share.

If, on the other hand, today’s $5 trading range settles back into the pattern of oscillating around $65 a share, then I’m sure I’ll get the chance to buy $65 calls for less than I sold the $70 calls for in the first place.

That would set me up for a profit no matter what happens, and an additional $5 a share profit if the stock trades up past $70 or down past $55.

We’ll see what happens.

hh

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