This week:
$117 profit and a double dip in Apple
Managing a covered strangle in SCHD
$117 profit and a double dip in AAPL
Last week I shared a new trade in AAPL, where I sold the $125 put expiring 20 Jan for $174 in premium. I noted that I was still iffy about tech in general and wanted to be a little bit more conservative on the trade. So when the CPI reading came out on Tuesday and AAPL was up more than 3% pre-market, I decided it was time to take some profits and sent out the following alert to my private community.
It's worth noting that the AAPL trade was initiated on Friday and taken off on Tuesday - so effectively it was $117 in profit for 2 days of risk. Not too bad at all. By the way the option was trading at over $220 on Friday, so if I hadn't taken it off, not only would it have been a wasted opportunity to lock in some gains, I would be sitting on over $50 of unrealised losses. I should point out this is not some stroke of genius or some excellence at reading the market tea leaves on my part, and the trade could easily have gone the other way if we got a bad CPI reading. However, my portfolio was extremely light with no positions on, so I felt it was worth just initiating one contract ahead of the CPI reading, as long as it was put on according to my risk management protocols. On Thursday, we caught another move and double dipped in AAPL, this time going even more conservative by selling a put at the $120 strike expiring 20 Jan for $86. As you can see from the screenshot below, the new position is trading at $137, even though the AAPL is still more than $14 away from my strike price with 34 days to go. So I'll be leaving it on for a while yet.
But, there are a couple of important takeaways:
No matter what I already made $117 on the previous AAPL trade. It's money in my pocket that isn't going back.
The risk on my new trade is lower than the original trade - $120 instead of $125. My risk profile is better than before, with a higher overall profit potential than before
Managing a covered strangle in SCHD
I haven't talked about SCHD in a while because there have been a number of new trades coming on and off - but I wanted to share my current position of managing a covered strangle. A covered strangle is one of my favourite strategies and involves selling 1 put and 1 call against 100 shares of stock (hence the position is covered). If the put ends up in the money, you pick up another 100 shares, if the call ends up in the money, you sell your 100 shares - usually higher than what you bought them at. It's a win-win and one of the 5 strategies I teach in detail in my course.
So starting on 5 Dec, I sold a $75 put expiring 20 Jan for $82 in premium
On Tuesday, after the CPI reading, I sold an $81 covered call for $55 in premium to fully establish the covered strangle.
By Friday that covered call was only worth $10, so I paid to close it which now leaves me with $127 to play with just to manage that put position.
Now I have a lot of ahem options. If SCHD rallies, I can sell another covered call and re-establish the covered strangle.
If SCHD waffles sideways, I leave that put on and wait for time decay to erode the option's premium.
If SCHD drops, I can roll or consider picking up 100 shares of SCHD at $75.
My existing positon is 100 shares at $78, so I would dollar cost averaging down on my overall position.
No matter what it is, I can make the decision based on the prices I'm comfortable at - not the market prices that most people buy and sell stocks at.
This article is for educational purposes only. This is my own portfolio which is being managed according to my goals and risk tolerance. Your situation is likely different and you should do your own due diligence before investing in stocks or options.