jt101,
There are many factors that might influence your choice of which strikes you might favor to implement yoru strategy. We will know for certain which choice is best only after time evolves the potential positions. Nevertheless, I'll tell you the one I find more appealing, and what I like about it.
Assuming your 12-25 target range is about right, and given the current downtrend that might continue for a while, I'd want to take a fairly well protected position, with good potential for eroding the short call premium. The short JUL17.5 with the long 2003JAN15 has more appeal to me than the others at the moment. The net debit of 2.55 will almost surely be recovered with future short call premiums, and there is no risk of losing money if CSCO rockets higher. Even if you are called out early on the JUL17.5, the long 2003JAN15 will have enough value for you to close out with a bit of profit. Most likely you will have an opportunity to adjust the short side to improve profit potential if the market begins to firm up, and downside risk becomes less important.
If CSCO were to drop fairly quickly to 12.50, you would be down about 1.00, but that would be near the bottom of your target range and you would have several options for improving your upside potential and reducing your risk. Even at July expiration, if CSCO is at 12.50 you should be down less than 1.50 overall, and in position to collect another decent premium on the next round. If it goes even lower, but you remain bullish, you might want to roll the long LEAPS down, and possibly out to 2004 to get the longer term LEAPS at a low price and wait for price improvement to write another round of shorts. The nearer term calls might appear more attractive because of the faster erosion of time premium, but that can be misleading. If this market breaks the recent lows, you might buy back the MAR17.5 for about .20 and make .60, but you will be deeper in the hole than with the longer term short calls. You could make a lot more buying back the JUL17.5 if the market dives soon than you could ever make on the MAR17.5 even if held till expiration.
Dan |
