Sold MS Strangle for September

I’ve been patient with my little Morgan Stanley (MS) position after I bought 100 shares at $29.00 from an option assignment only to see it dive down below $22.50.  They’ve made a nice comeback and might keep going, but I decided to take some profits while I can.  MS could hit resistance before it gets to $28.00.  On July 21st it made it up to $27.89 before cooling off.  Beyond that I can see another potential speed bump close to $29.00 where it held support this past spring.  I think support (if it even dips again anytime soon) should be around $25.00 and see it highly unlikely to go back below its recent low of $22.41.

With that range in mind I figured an options strangle on MS would be my best move to make.  While MS was trading at $27.42 I placed a limit order for $1.60 and sold one MS September 28 covered call and at $1.02 and one MS September 25 naked put at $0.58.  I received $157.97 after commissions.  If MS closes at the September expiry below $29.58 (call strike plus premiums), but above $25.84 (current price minus premiums) I made the right trade.  If I wasn’t already long 100 shares my floor for a profit would be $23.42.  I’m comfortable adding more shares down there while I reduce my average cost per share on 200 shares.

As I got to the end of writing up this post I noticed the S&P 500 was back below its 200 day moving average.  My first thought went right to questioning the legs of this rally.  If the 200 day line keeps pulling the index back without a clear break I could see another solid dip coming again, soon.  It’s probably getting to the point that I should go ahead and sell covered calls on my remaining long positions, INTC, MSFT and UCO.  I might be back this afternoon with some more trade updates.  I might be a little late on my UCO move already.