Added Leg to SLB Option Position
A month ago when I sold a strangle on Schlumberger Ltd (SLB) and took a net credit of $646.98 I thought I’d be safe on both sides through June option expiration, but then the rally hit and all of the sudden I was a little worse off than break even on paper for my SLB strangle. I finally decided to take some more risk on to the downside while giving me some more cushion on the top side too.
While SLB was trading at 58.61 I sold to open two June 55 SLB naked puts (SLBRK) at $1.15 and received $218.50 after commissions. That gives me a total of $865.48 I’ve received in premiums on my SLB June options. I now have what amounts to two naked puts at June 45 and a straddle at June 55 with two options on each side. I don’t think the June 45 options will come into play, but I will be willing to take the assignment down there without a lot more downside risk, maybe. Considering the 55 strike options only, I have a $4.33 cushion on each side now. That’s a break even point of $50.67 to the downside and $59.33 to the upside. A close in between those edges means I finish with a profit and the closer to $55 the better.
These puts bring my position delta on SLB to -90. That means I’ll do better if SLB comes down more. I don’t typically manage my positions to be delta neutral, but I don’t completely ignore the importance of it either. I considered selling a naked call at the June 60 strike, but then figured I had enough risk to the upside already. If SLB comes back to the low $50s, I’ll probably take the assignment rather than roll the naked puts and ride it from there.
Comment by mule65
OT: Alex, I thought you’d like this video. I read Mike “Mish” Shedlock daily and have learned and profited a lot. You’re somewhat on a parallel path. Here’s his story…
http://www.calculatedriskblog.com/2009/06/mish-speaks-at-google.html
Comment by Alex Fotopoulos
Cool, thanks Mule. I’m going to have to watch this in multiple sections. I’m 12 minutes in and have to get back to work. So far it sounds very interesting and definately looks like my path, but on a much bigger scale.
Comment by therealisttruest
Alex,
You stopped by my blog a bit ago and mentioned this strategy. Looking at your materials, I’d say you know what you are doing, whereas I’m just a newbie for the most part. Are you still good with this strategy as we approach 59 today with several days before options expiry? I’m still biased towards long and the downside looks limited to around 55 at this point. Of course, these are only my semi-educated guesses, as I honestly never know for sure what the market is going to do. Anyway, just wanted to check with you on that.
One other thing, that is OT, I have some questions that are financial blog related. I just started mine recently and was wondering if you might give me some tips. Please email me if you have time.
Thanks,
Daniel at realtruefx
Comment by Alex Fotopoulos
Daniel, I just posted an update to my SLB position – http://mytradersjournal.com/stock-options/2009/06/10/rolled-slb-june-55-naked-put-higher/.
For blogging questions, you can email me directly at alex AT mytradersjournal DOT com.
I think SLB might have support at $55 and I’m less sure on the upside, so I’m giving myself a bigger cushion.
Comment by therealisttruest
Thanks, just emailed you. Not so sure about my SLB position, but that late rally made me feel a bit better. Looks like you might have made a good move too. Good luck!