Hey, Space Cadet! Here's your example, but promise not to ask how I got in such a dumb circumstance.
A Straddle is Puts & Calls sold or purchased for the same strike & X-date.
I own CKFR, 1,000 shares. Today's close: 23 1/4
I sold 5 Feb 10 calls @ 3 3/8, they're 13 now. expire in 6 weeks.
I don't want to sell 500 CKFR @ $10 + the 3 3/8 premium I was paid = 13 3/8, $10 under today's market. What to do?
Close the Feb 10 calls for $13.
Sell August 22 1/2 straddles for about $13
A zero cost trade & the strike is raised to $22.50.
In August, I can roll out to a February straddle.
I can do this regardless of which way the stock went.
Suppose CKFR is $30 in August: I roll to a Feb 2,000 $30 straddle and buy back the 22 1/2 calls I'm about to sell. Zero-cost, raising the strike again! Eventually I let the stock be called and realize substantial improvement from the $10 for which I originally bought it.
Or in August I can sell calls on all 1,000 shares, and puts too. The premiums will be 40-50% of the stock's market price.
The point of this exhibit: how to ratchet up the strike price rather than lose shares on low strike calls sold earlier. O yes, I'll still have the original 3 3/8 premium in my pocket!
Want to ride the Tiger? Happy investing, Cadet!
Don Martini |
