As some may recall, a few weeks ago I was putting on option strangles in the daytraders’ darling, FAZ.
In a couple of different accounts I had sold puts and calls against this vol monster, and they were working pretty well.
In July, for example, in one account, I had gone long the stock, and short $18 calls (double the stock shares) and short the $16 puts (equal the number of long shares).
Time decay has been doing its thing, and the position is looking pretty good, even with the calls going into the money today. I picked up around 4 points per share in time premium when I put the trade on, so I’m not losing money at expiration unless the stock is north of $22 or $23 a share.
The more interesting aspect of this stock is the huge premium for longer-dated options. I just sold another set of puts and calls for January, which will come faster than I can imagine if the passage of the last six months is any indication of my revised temporal sense.
The net premium collected from selling Jan $20 calls and Jan $18 puts in matched amounts was $10.50 per share, after commissions. That leaves me with a pretty wide window of profitability — from $7.50 up to $30.50.
I do worry a little about the potential for the stock trading north of $30 by January, but after the July series expires, maybe I’ll buy a few shares outright so I end up slightly biased toward the up-in-price side of the trade.