Stock Symbol: [private_monthly]GLW[/private_monthly]
Option Strategy: Combo (short put / long call)
Update: Occasionally, when we're looking to enter a covered call position, we'll start off by implementing a combo option strategy which involves the simultaneous purchase of a call and the sale of put; ideally for a net credit. On August 9th, when we put this trade on [private_monthly]Corning - GLW[/private_monthly], the stock had closed the day at $18.94. At the time, we were very bullish on this stock, expecting that it was poised to rocket up to $20 – $22 within a month. But, in an effort to protect in the event of a downside move on [private_monthly]GLW[/private_monthly], we decided to start out with the combo strategy. This way, while we liked [private_monthly]GLW[/private_monthly] at $18.94, we decided that we'd be really happy to own it at $18. Also, if we were right, and the stock broke out over $20.35, we'd make additional profits on the long call. With the stock closing on Friday's expiration under $18 at $17.00, we were obligated to purchase 10o shares of [private_monthly]GLW[/private_monthly] at $18.00 per share. Of course, because we initially took in a $0.30 per share credit from the initial trade, our cost basis in [private_monthly]GLW[/private_monthly] is actually just $17.70.
Initial Trade Details:
BTO 1 Sep 20 call option for $0.29
STO -1 Sep 18 put option for $0.59
for a net credit of $0.30
Then, on August 25th, we added the following call spread to this trade:
BTO 1 NOV 16 CALL for $1.33
StO -1 OCT 18 CALL for $0.28
for a net debit of: $1.05
Current value of this spread is: $1.58 (up 50%)
Factoring in the call spread, our adjusted cost basis in [private_monthly]GLW[/private_monthly] is $17.17. At today's closing price of $17.61, we're actually up 2.56%; compare this to the 7.02 % we'd be down had we just bought the stock for $18.94 when we initiated this trade.
This week, we will look to sell either an Oct 18 or 19 strike call on [private_monthly]GLW[/private_monthly], as soon as it looks like the stock is peaking short term.
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