Good morning!
Wow, INTC went hard the other way, down 7% now. IBM crushed down 11% so we have to move on that:
IBM Long Call | 2023 20-JAN 110.00 CALL [IBM @ $117.70 $-13.96] | 20 | 10/12/2020 | (728) | $50,000 | $25.00 | $-5.93 | $25.00 | $19.08 | $-8.89 | $-11,850 | -23.7% | $38,150 | ||
IBM Short Call | 2023 20-JAN 125.00 CALL [IBM @ $117.70 $-13.96] | -20 | 10/12/2020 | (728) | $-38,000 | $19.00 | $-6.35 | $12.65 | $-7.45 | $12,700 | 33.4% | $-25,300 | |||
IBM Short Put | 2023 20-JAN 100.00 PUT [IBM @ $117.70 $-13.96] | -10 | 10/12/2020 | (728) | $-11,750 | $11.75 | $2.00 | $13.75 | $3.85 | $-2,000 | -17.0% | $-13,750 |
In the LTP, let's sell 10 more IBM 2023 $100 puts for $14 ($14,000) and let's use that money to buy back 1/2 (10) of the $125 calls ($13,000) and we will certainly roll our 10 2023 $110 calls at $19 to the 2023 $100 calls at $24 for net $5 ($10,000). So for net $9,000 we've rolled $20,000 deeper into the money (keeping up with the drop) and widened our spread by $20,000 and removed 1/2 the covers and we still have an open slot to sell 10 (for example) April $120s, now $5 ($5,000), which were $13 yesterday and if we make just 2 sales like that we pay for the whole adjustment.
Not that IBM can't go lower but I'm worried it won't and we'll miss it.
INTC Short Put | 2022 21-JAN 30.00 PUT [INTC @ $58.61 $-3.85] | -10 | 3/12/2020 | (364) | $-3,000 | $3.00 | $-2.33 | $7.00 | $0.67 | $0.07 | $2,330 | 77.7% | $-670 | ||
INTC Short Put | 2022 21-JAN 50.00 PUT [INTC @ $58.61 $-3.85] | -20 | 7/24/2020 | (364) | $-17,000 | $8.50 | $-4.13 | $4.38 | $0.78 | $8,250 | 48.5% | $-8,750 | |||
INTC Long Call | 2023 20-JAN 35.00 CALL [INTC @ $58.61 $-3.85] | 50 | 11/17/2020 | (728) | $67,000 | $13.40 | $11.85 | $25.25 | $-3.75 | $59,250 | 88.4% | $126,250 | |||
INTC Short Call | 2023 20-JAN 50.00 CALL [INTC @ $58.61 $-3.85] | -50 | 11/17/2020 | (728) | $-31,250 | $6.25 | $7.95 | $14.20 | $-3.30 | $-39,750 | -127.2% | $-71,000 |
The problem here is we had such a good entry that this doesn't really affect us.
So, as a new trade, it's going to be IBM and I'd go this way:
- Sell 10 IBM 2023 $110 puts at $18.50 ($18,500)
- Buy 20 IBM 2023 $100 calls for $25 ($50,000)
- Sell 20 IBM 2023 $120 calls for $15 ($30,000)
?That's net $1,500 on the $40,000 spread so the upside potential is $38,500 (2,566%) if IBM can claw back to $120 in two years. The downside risk is owning 1,000 shares of IBM for net $111.50 – and from there we could sell more puts and calls to drop the basis well under $100. Think or Swim says 10 short IBM 110 puts cost us $7,660 in margin so it's a very margin-efficient trade also.
Our Earnings Portfolio has plenty of buying power so let's do the above trade by half – selling 5 puts and buying 10 of the spreads for $19,250 of upside potential, which would be 19% of our starting basis on this one trade.
Oil flew back to $52.50