Steve, I've re-read your basic guideline for your strategy and am unclear on one point: you refer to an "upstrike" call.
Here's what I understand so far:
1. Buy stocks you like; pick stocks with good fundamentals.
2. When volatility is high, especially near announcements, wait for upswings in price to buy protective puts with strike price below current price to take advantage of cheap insurance.
3. Also when price is high, sell calls at a high strike price and long future date to get a large premium. This improves profitibility.
4. If this is all we do, we have locked in a loss point (puts), and gain (long sold calls), but are exposed if we put the stock and the sold calls are still outstanding since we no longer own the stock. If the stock price subsequently rises to make the calls in the money, we're in trouble! (Of course, we can sell the puts and keep the stock, and just pocket the profit.)
5. On price dips, buy calls with same terms as #3 to close out the position. Cost will be less than revenue from original sale.
6. If stock just shoots up, puts become worthless. Is this where the "upstrike calls" become useful? |
