Hi Mike,
I enjoy your detailed researched comments.
What do you think of this idea to increase your holding for the long term? Say I want to own 1000 shares of FGII. Price today is 22.375.
Cost 1000 x 22.375 = 22,375.
Instead of the above what about a covered combination of buying the stock, selling puts, and selling calls?
Example: 1000 shares = 22,375.
sell 10 Aug 35 Calls at 2.75 = 275 x 10 = 2,750
sell 10 Aug 22.5 Puts at 5.75 = 575 x 10 = 5,750
Your premium after commissions is $8,420
Scene 1: Stock above call price at expiration.
Net Profit = $21,045
Percentage Return = 150.48%
Scene 2: Put assigned (you buy another 1000 shares at 22.5)
Net cost on total stock position = $36,515
Average price/share = 18.25
Start writing covered calls to reduce basis.
Scene 3. Stock between call strike and put strike at expiration.
Unrealized profit = $8,390.00
Percentage return = 59.99%
These calculations come from the CBOE Covered Combination Worksheet.
Any comments would be appreciated, since I would like to buy more FGII and GLM and this seems better to me than just buying the stock,
because I have some downside protection, some upside room for gain and some time until Aug 98 for the insanity to stop.
Thanks.
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