click-->https://twitter.com/Mark_Lexus to follow on twitter
------------------------------------------------------------------------------------------------------------------------------------------
11apr -tonight on the fast money segment, here is the clip.. Options Action clip , mike recommended the following on BTU if you owned the stock:
Sell the June31 call for $1.10
Sell the June25 put for $1.10
total credit of $2.20
Stock is at about $28.30. he did mention that you should own this stock and want to buy more. So by "selling this strangle" , you collect that $2.20 if stock closes at June opex between 25-31.. i like selling strangles for this exact reason, you can collect double the premium of just a straight covered call. Downside to this is that if stock drops and closed below 25 at opex and you do not close out the put, you will be "put the stock", ie you will be forced to buy more shares at 25. your net is $22.80 since you already took in the $2.20 in premium.
not mentioned is that you have to set aside margin/buying power to buy that stock at 25.. so figure $2500 in margin needed for every strangle you sell. additionally, you profit on this primarily on time decay, so there is no trading with this.
Again, only do this if you already own the stock, are ok with buying more lower, and are ok with holding this till June opex.
Flip side is that if stock takes off you are capped at $33.30, but that might fit your risk tolerance. I prefer to do this on stocks with greater IV, to get higher premiums. this strategy combines two great strategies of acquiring stock via selling puts and also the covered calls strategy.
