I wrote about my plans yesterday and even before the market opened today my alert for JP Morgan (JPM) was blaring at me as it was trading pre-market below the floor I set for it. I had alerts set to go off when JPM went outside of Wednesday’s trading range and I figured that’d tell me where I wanted to sell my covered call and possibly a new naked put too. I started with covering the shares I already owned and when JPM was trading at $39.35 I sold one JPM November 39 covered call (in the money) for $2.20 and received $218.99 after commissions.
As stocks are prone to do, JPM bounced off its opening low and even looked like it was going to hold support before it got all of the way down to its 20 and 50 day moving averages. I watched it climb up slowly and by the time I was about to leave for lunch (around the high of the day) I decided to enter a limit order to sell a naked put to go with my 100 shares and new covered call. While I was away and JPM was trading back down to $39.47 I sold one JPM November 39 naked put (out of the money) for $1.85 and received $183.99 after commissions. The combined income for the straddle was $402.98. (Since both my call and put are at the same strike this is called a “straddle”.)
By selling a straddle I’m ensuring that one of my options will finish with a full profit and the other one may end up giving me a partial profit or a loss. If JPM finishes within $4.03 of $39.00 (that’s $34.97 – $43.03) in either direction then I made a profitable trade. $41.50 seemed to be a hard ceiling earlier this week for JPM and I’m banking on that staying true for the next eight weeks. $35-36 looks like support on the other side. When I put all of that together I think I’m not taking too big of a risk with these two trades. Looking at the put by itself, I’ll take an option assignment for a paper loss below $37.16. I’m comfortable with that based on potential support being so close by.
When I add in my premiums from today and earlier trades my cost per share on the current 100 shares I own is down to $40.02. It’ll be closer to $39.50 if I’m assigned 100 shares at $39.00. With a cost per share that low I don’t think I’ll have a hard time sitting back and writing covered calls every other month and working this series of trades into a profit. If JPM goes for a run higher I won’t chase it and will end with a $102.02 loss which isn’t too bad considering how low JPM is compared to when I opened my first naked put in this series.