Last week I mentioned that I took an option assignment on my JP Morgan (JPM) naked put. I sat on the shares for a little while trying to decide how to make my next move. I thought JPM might have some more upside, which it has since I was forced into buying the shares, but was also still nervous about adding any more shares. I decided the best option was to sell both a new naked put and a covered call (an option strangle plus long 100 shares). While JPM was trading at $39.43 my order hit and I sold one JPM August 37 naked put at $1.18 and sold one JPM August 42 covered call at $0.90 and received $205.67 after commissions.
After buying my first 100 shares at $48.00 I left the emotional aspect of wanting to finish the series of trades with a profit out of my decision making process. I think JPM is close to fairly priced where it is now (unless some new regulation hits that hurts it worse than I expect). Based on that assumption I figured selling my 100 shares for than $2.50 higher than they are now would be a good thing. The same goes for buying almost $2.50 lower than the current price. I gave myself a wide range to have both of these options expire worthless at the same time.
I took in $1.85/share from the original naked puts and $2.05/share from this strangle if the naked put isn’t assigned. That gives me a current cost per share of $44.10 if JPM stays above $37.00. If the new naked put is assigned I’ll have 200 shares including the 100 shares I’ll have to buy at $37.00. That’ll bring my cost per share down to $40.55 if JPM doesn’t stay above $37.00. I’ll still be in a hole, but closer to the trading price by then. I doubt I’d sell any more naked puts to add more shares, but will certainly plan to sell new covered calls in that situation.