You are missing the point, assignment is a risk not something i WANT to buy. Chance of a july non-dividend stock early assignment is not high. I would use $1.2 credit to buy the stock at $3.5. As for the stock price going down from 3.8 to 3.5 on friday, that's not relevant for the discussion. As for it being wallpaper, that's your opinion on the outlook of etfc (looks like you do have an opinion on the outlook after all), maybe right or wrong, not the point. Go argue about that on yahoo finance instead. The downside risk IS limited... to $190, with great upside potential (my view). Feb 5 is .15-.2, 4 is .35-.45, considering underlying at 3.5 i say that's not bad. I dont think that's writing a COVERED call, where is the cover? Isnt that just a short strangle? you are betting a highly volatile sub $5 stock will stay within a trading range of 3(short put) - 5( short call), and in the process add an unlimited risk to your position. (what if amtrade buys etfc and it jumps to $10?).
Naked put = covered call. Instead of buying the shares and writing a call, don't buy the shares and do write a put. Same strike, same date. If you don't think they're equivalent, pick a few strike prices and compare the two at expiration at a few stock prices.
I'm missing the point? LOL! Who's talking about early assignment? By selling the Jul 5/3 vertical put spread for a credit of $1.20, you are entering into a contract to buy the stock at $3.80 if you are assigned. You can buy the stock for $3.55 (Friday's close). Where's the edge in that "deal" ? 1)Here's a hot tip for you... People sell options in order to collect time premium in order to reduce the cost of a position and provide some downside protection. Where's your time premium? 2) What's the big deal about taking an intrinsic credit and using it to buy more stock? If the stock goes nowhere, you lose since there's no time premium being collected (see #1) 3) Who cares how much the stock dropped on Friday? Or on Thursday? Or on any other day? The price of the stock is relevant to the time at which the options are traded. LOL. My opinion is relegated to the fact that stocks trade at $3.50 for a reason. That's only $3.50 away from wallpaper status. Whether it's going bankrupt or up to the moon is for you to bet on. The simple fact is that it's $3.50 away from bye bye. You are entitled to believe that 7.5 cts per month is not bad. But considering that you initially suggested selling CC's month to month and your quoting 2 month options, I'd say that you'd like it both ways. Consider brushing up on synthetically equivalent strategies as well as learning what option components make up various option strategies. Good luck with this position. Yep, you're right. It has a great risk/reward spectrum. And don't forget to come back and tell us "I told you so" if it works out for you.
i read it wrong. sell naked puts instead of buying the stock and writing covered calls against it sell naked puts instead of buying the stock and writing covered calls against it Anyway i havent made the trade yet, waiting for the technical to become a bit more clearer.
This has gotten way too complicated, where did the naked calls come from? Your original position wasn't bad at all. There is some risk of it going to zero and you losing some $, but the risk isn't much and every trade has risk. I just wouldn't put out the $ for the 300 shares of stock. You can buy 3 Jan 09 sp 5 calls for 1/3 the price of the stock and still reap the $ if this gets a big pop on good news. As for the fact it is at $3.50, I was selling naked puts on nortel when nortel was at $2.50 a few years ago. Kept meaning to buy a dozen or so sp $5 LEAPS as far out as I could and then just forgot about it. Would have been a nice 10 bagger.
yes that's what i plan to do, use the credit from the put spread to buy the 2010 5 calls instead of the stock at about 30% of the underlying price to limit some additional risk. I think tomorrow will be anotehr down day for etfc as it's the last day of the year, many will close their losing positions for yearend tax. Shorts will wait until next year to avoid paying taxes on their gains and begin to cover before jan earning. jan will be an interesting month for etfc