The moral to this story is that it filled opportunistically. She filled on shares rallying. Now, had the mkt dropped she would have missed the short call fill. You should be short synthetics straddles or short put synthetics on every position you own.
Des, I respect your input...I just see things in a different way. Why buy a put, when my wife intends to hold this company for a LONGGG time...Through a major recession. It's not just the products/income. She sees the pipeline and partnerships... One home run (bio drug) and she will do well... Do a put and buying it back...Too much work for her and me.
I didn't state to buy a put. I stated that you should be overwriting your portfolio. Short call + shares = synthetic short put. Overwriting with calls = synthetic bull short straddle.
Sorry Des, you are out of my league. Maybe a links to investopedia or another website might be helpful...Basic english, like you are talking to a 6th grader.
Des, is this what you are talking about? Example Suppose XYZ stock is trading at $40 in June. An options trader implements a short call synthetic straddle by selling two JUL 40 calls for $200 each and buying 100 shares of XYZ stock for $4000. The net premium received for the calls is $400. If XYZ stock is trading at $50 on expiration in July, the two JUL 40 calls expire in-the-money and has an intrinsic value of $1000 each. Buying back the the call options to close out the position will cost the trader $2000. However, the long stock position posted a gain of $1000. Taking into account the net premium of $400 received, the short call synthetic straddle's loss comes to: $2000 - $1000 - $400 = $600. On expiration in July, if XYZ stock is still trading at $40, both the JUL 40 calls expire worthless while the long stock position broke even. Hence, the short call synthetic straddle trader made his maximum profit which is equal to the initial $400 net premium received upon entering the trade. So what happens on the day of expiration, NVS announces one of their patented drugs causes lymph node cancer?? Devil's advocate here...
You lose $200 less than you would have in the CC. $400 less than if you're simply long the stock. But yes, the synthetic straddle is equivalent to shorting a $40 straddle, but in your case (the synthetic) it allows you to run it against shares you already hold. Try it as a half lot. Long 50 shares and short 1 call. The half lot can only be accomplished with the synthetic (long 50 shares -> short one call) as there are no fractional options.
Getting back to you Des...I don't fully understand the trade. I'm older...Old dogs, new tricks. I could spend hours figuring it out...But even then, not choose to make the move. My wife and I usually buy stocks in round lots (for options). Most of the time it is just 100 shares (want to stay diversified). That's why Amazon and Google looked so good, when they dropped after stock splits. Only about 1/3 of our stocks are optioned (leaps if possible, way OTM). Others I don't want to option for fear of inflation (ADM, BGS, RING, BP). The word ambiguity comes to mind. If I am not certain about a trade (especially options) I should not enter it. I know covered calls...Buying back with a put, and buying back the put at the end, near expiration date. I get it!! I was a Realtor for about 15 years. I was good with the contracts, but hated to network!! A couple things my first (brilliant broker) told me was, assume any and all contracts will appear before a judge. The second, the contract should never be ambiguous. Having three people read the same contract, they should come up with (very closely) the same process..."If this happens, then this happens, then this happens". If I can't see the pitfalls and benefits (and have to trade manually)...I would rather not enter the trades. Just me...
You're looking for a strike while doubling your credit. With a CC you're called above the strike at expiration... with a synthetic straddle you're looking for the stock to trade to the strike.
What Des is getting at is any price under your sold calls and you have doubled your income from selling options against your your shares. You can look to sell some resistance or whatever you think the price won't trade through or just go with 20 delta calls. Personally I would bring the time in from leaps to 3-6 month options. 1 month out buy calls back and roll further out in time rinse and repeat. Options for you if stock trades to short calls before the above has happened. 1) buy back calls and sell stock ie close whole position. 2) buy a put and call otm to convert to a butterfly- best suited if the atm vol is still jacked 3) buy calls back and roll up and out