After adding a second leg of two calls on top of my 200 shares of TDW last week I’ve only seen TDW go up. That’s good for my 200 shares, but bad for my four calls, especially since two of them are uncovered, aka naked. This morning I clued in to another move that could help make this a winning series of trades. While TDW was trading at $40.08 I sold to open two February 35 naked puts (TDWNG) for $1.05 each and received $198.50 after commissions. I was already delta positive and this moved my TDW position to a positive 86 delta. In other words, I’ll make more money when TDW goes up and will also make money if it stays flat due to erosion of time value.
Ideally TDW will close at February options expiration in the upper 30s. That’ll allow me to keep my 200 shares while all three legs of options expire worthless. I actually think TDW will end between $40 and $45 by then based on the chart, but if oil keeps rising all bets are off. I picked $35 for the naked put strike because it’s $5 out of the money (OTM) and shows support on the chart. Throw in the fact that implied volatility is over 70 and it looks like it could be a good trade on its own. I like it more with my calls on the other side so I’m guaranteed to “win” on one side and maybe both. If TDW blows past $35 or $45 I’ll at least have the extra premiums from the other side to cushion any losses. I wouldn’t mind buying more at $35 if it comes to that since I think $31-32 offers even more support from the November lows.
I’m only ahead of my January goal by a couple of hundred dollars, so I need this week to stay flat or go up for my holdings. I have more than $4,000 in options’ time value scheduled to expire in February, so that gives me a little room for a pull back next month if my stock picks are wrong, but also gives me the opportunity to get well ahead of my monthly targets before another bad month or two finds me.
I haven’t had much to say lately, but i’m trying to get back in the swing of reading your posts again. Should be an interesting year.