Jose, your analyses on PURW was featured on Motley Fool. Do you write for them ? All kidding aside, they must have read your post last week. Amigos, check out the MF view on PURW.
Getting into the options example, thanks for sticking with Joe's model.
I think that you missed some of the numbers. Let's look at the first example again.
The scenario:
<We are assuming we originally purchased 300 shares at $19 ($5,700) and the current price is 15 7/8.
OK I sell 3 Feb. 15 calls @ 3 3/8 for $1,012.50
and I sell 3 Feb. puts @ 1 13/16 for $543.75>
Strike price above 15:
In this example, the profit is small, as you said. It's only about $350.00
but, before the stradle position was executed the position was negative about $900.00 ($19 - 15 7/8 x 300). The straddle position therefore resulted in a small win out of a about a 15 % loss. (calculator
not available, just a quick estimate.) If the stradle had been executed when opening the position on the stock, the gains would have been larger.
Strike price below 15:
Good points Jose. Only comment I would add, is that it's not necessary to wait till expiration date to close out the position, therefore using the stradle as noted, would have turned the $900.00
loser into a break even event.
Strike price at 15:
Again, the stradle turned a loser into a gainer.
Very interesting Jose. It should be noted that not all accounts are allowed to sell puts.
Sergio |
