Interesting options play, moby. Here's a comment.
You have a nice potential upside in this play, but for those new to options, let me add some "color commentary:"
1) Writing puts will require and tie up collateral for their duration. (There is no "free lunch.")
2) If DBCC falls below $17.50, the maintenance (collateral) requirement will increase (unless the "short" puts are bought in or offset with "long" puts). In your case, though, the "short" calls will offset this issue to some extent.
3) Normally, the premium income received can earn interest at the broker's money market rate or can be reinvested. You'll add this factor to your potential upside.
4) The upside of this "combo" play is finite (limited).
5) If DBCC rises above $17.50 at expiration, your long position will be called away (unless the "short" calls are bought in).
6) The gain, if any, is taxable at your marginal rate.
7) As this trade is far out in time (6 months+), you'll be sitting with it for many moons. A lot could happen between now and then. (For this reason, many options traders would pass on this play, preferring to run a shorter interval (with covered calls).)
Options plays, especially those involving puts, are NOT for inexperienced investors. You can, and will, lose A LOT of money.
In my own case, I bought Jan 10 and 12.5 calls (in late Nov) and sold Mar 5 puts (in mid-Oct!)). My stock is staying long.
Good luck. Let us know how you did!
BAM |
