After my 100 shares of Tidewater (TDW) closed below my covered call stike on Friday I decided to sell new covered calls while at the same time selling new naked puts at a lower strike. While TDW was trading at $55.68 I sold one TDW October 55 covered call in the money and received $379.25 after commissions. I followed that immediately by turning the covered call into a strangle and sold one TDW October 50 naked put out of the money and received $134.25 after commissions.
I debated if I should sell at the same strike or not. After deciding not to sell at the same strike I had to choose what the two strikes would be. I decided to sell slightly in the money with the covered call since the premiums are so good and I wanted to increase my chances for having more money in two months than I have now. I’ll actually take a small loss on the series of trades, but I can’t base my decision on where to set my strike on the emotional tie of wanting a profit. I have to focus on where I think TDW could be in two months. I don’t think TDW will be below $50, so I sold the extra naked put there. The upside could be above $60 again, but the premiums at the $55 strike on the calls made it worth a trade while reducing my downside risk. Paring the trades into a strangle give me the chance to take a full profit on both when they expire if TDW closes between $50.00 and $55.00. If that happens I’ll repeat the trade at the same strikes most likely.