I have a few naked puts against Taser Inc. (TASR) which fell from $20 a share all the way down to $13. I had a few puts at 18 strike and was forced to roll the puts down all the way to 13 strike.
Recently, the stock seemed to stop at $13 a share, but today the stock seems to renew its fall and continued below 13 strike price.
I have plenty of time in my put contracts, so there is no need to roll the options right now. But the stock created a downward setup and it may continue down.
I decided to open a naked call trade against this stock speculating that it will not move higher and also offsetting my put options a bit. In other words I plan on collecting premiums selling calls (see a video about Karen the Supertrader’s strategy of selling naked puts and calls against indexes) on this depressed stock.
I just hope that my indicators are good and that I can rely on what I see. If so and the stock stays below $14 a share this trade will expire worthless and I will keep the premium.
If the stock continues higher, I may pursue rolling this trade higher the same way as rolling puts lower.
Trade Details
STO -5 DEC14 14 $1.10
| Max Profit | $550 | When selling calls, the hope is that they will expire worthless, so the max profit is equal to your execution price. Max profit occurs if TASR is below 14 on expiration day, which is December 19 for this option. |
| Max Loss | Infinity | In theory, TASR could keep going up, and since you are giving someone else the right to buy it at 14, your max loss is unlimited. However, remember that this trade has a time limit on it. On expiration day, December 19 for this option, if TASR is above 14 you will either need to buy back (cover) the call or you will be assigned -500 shares of TASR as a short position, with an entry of 14. |
Have a great day and happy trading and investing!
Leave a Reply