This week's Striking Price column in Barron's (the column about options) had a recommendation from some brokerage firm of buying Bank of America (BAC) common and selling the January 10 call and selling the January 7.50 put for a total premium of $1.59 with common currently at $8.83.That all sounds like very juicy options premium but anecdotally speaking it seems like with trade ideas like this the frequency with which the stock goes way above the $10 strike price plus the premium (so in this case $11.59) or way below the $7.50 and factoring in the premium is shockingly high.
This typically results in being stuck in the position if this starts to occur fairly early on when the volatility can go up (thus increasing the price) but before there is any meaningful decay in the option premium sold. And as a function of Murphy's law the stock won't come back in between the strikes until the options are rolled forward (meaning rolling forward frequently does not go well).
I wrote about this same thing a few years ago with a trade on Mastercard and selling calls that was recommended on CNBC. This is just anecdotal so do with it what you want.
Alan Abelson had his funniest line ever in this week's column: Silver, on the other hand, strikes us an awfully good hedge against capital gains.
Yesterday the fire department had its annual pack test. This is where each of the firefighters must go three miles on a track wearing 45lbs in 45 minutes or less. This is an annual requirement for fighting wildfires. I beat last year's time by 15 seconds finishing in 40:05 which I was pleased with. Another chief from a nearby department once told me that the chief of a small department needs to look like he can do it. My thought is that the chief of a small department needs to be able to actually do it.
Friday in the tourney was fantastic as two number 2 seeds fell. Rooting for schools like Norfolk State and Lehigh is what makes watching so fun.
Very busy weekend so a short post and we are due for a serious winter storm.
1 comments:
I've written covered options when I was prepared to sell and naked ones when I was prepared to buy; If neither met the price target I got paid for waiting. Never felt I had a good enough handle on the action and combined probabilities to use them as a primary trading vehicle.
Big cold front blew through here last night and there seems to be some chance it will pick up gulf moisture as it heads east; e.g., http://tinyurl.com/6v3luz5
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