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Strategies & Market Trends : Option Strategies

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To: dave rose who wrote (2169)	7/25/2020 12:22:05 PM
From: Thehammer	of 2591

Congrats Dave, very nice! Most of the experts would tell you to lock in some profits and then play with the house money. I was surprised to look at the quotes and see that the Time Value is so low for that strike. FNV = $158.54 FNV JAN20 $100 = 58.50 BID / 61.90 ASK (midpoint = 60.5) so TV ~$1.50 You would need to have the required option approval level to do spreads as well as sufficient margin in a margin account. You could sell the AUG 165 call for ~$4.30 ( I picked that because of the open volume - you could certainly pick another strike.) I think that works out to around 34% annualized return. You say you are bullish on the stock but we could have 3 potential scenarios 2 of which could have a wide variance. 1) Scenario 1: FNV declines and is less than today's price at expiration for the August call You will pocket the AUG premium. You could let them expire or you could write another call (probably a lower strike price) and buy these back. You would have given up some of the paper profit on the JAN calls ( I am assuming it stays above $120.00 which is break even) 2) Scenario 2 : FNV stays about the same Again you pocket the AUG premium and could follow the same process as above. You could roll to the SEP $165, The TV may be higher or lower at that point 3) Scenario 3: FNV is over $165 at or near expiration. You have multiple options: a) Buy back the call (and possibly sell the long calls as well) b) Roll the short call up and out (this would depend on how much the stock has run) c) Go short FNV from the assignment of the short calls. Position is hedged until the expiration of the Jan calls. Some things to keep in mind: When you get huge moves in a security - the ability to roll may not be there. There is no guarantee that new options will be offered by the exchange. Volatility may decrease and so would the time value. Markets do strange things and what we assume as constants or givens sometimes are not. A year ago, today's situation would have seemed like SF... I roll puts and calls all the time using spread orders. I am decent at picking stocks but terrible at short term price movements. I very seldom am assigned but I tend to play around more with dividend growth stocks that have less volatility.

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