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Trade Alert – ROTH IRA cash secured put (LGCY)

I am going to open a cash covered put trade (CSP) in my ROTH IRA account on Monday using LGCY stock.

The stock has been beaten up severely and I own it at $12.40 a share but it currently trades at $2.24 a share. It paid dividends, but about a year ago it suspended it. Time for recovery is too long.

 
LGCY trend
 

I decided to start selling puts and if assigned, selling covered calls using this stock and hopefully to improve my cost basis.

I only own 83 shares so I cannot sell calls yet so starting with puts.

But options for this stock are not very good, so thinking out of the box will be needed.

 

 · Trade Detail

 

On Monday, I will take the following trade:

STO 1 LGCY Sep16 5 put
@ 2.80 LIMIT DAY
DTE = 97
LGCY put selling

As you can see, the option is deep in the money (DITM), but if I get assigned I will buy at 5 a share, but because of collected premium my cost basis will only be $2.20 a share. The stock is trading at $2.24 a share, so I will be making a few cents profit.

 

 · Trading Plan

 

I will not be taking assignment unless I get early assigned or I would have to do it due to other circumstances such as inability to roll.

I would rather roll the option. I am selling September contract (97 DTE). When the time gets closer to September (I expect 2 to 3 weeks to expiration) if the stock will still be hoovering around $2.20 a share, I will roll the contract away in time with the same strike (maybe into January 2017) and collect more premium.

If I managed to keep the contract, I expect it to be worth approx. $2 (or whatever the intrinsic value will be) and I will roll to capture another time value further away in time.

Hopefully, I will be able to do this as long as the stock gets higher in price or I get assigned in which case I buy 100 shares and start selling covered calls.

I’ll keep you all posted on this trade and its development.

 





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