Strategy adjustments

The above courtesy of Dictionary.com gives us the definition of Strategy. The relevant one for this post is #4:

a plan, method, or series of maneuvers or stratagems for obtaining a specific goal or result

I have been building a new position in $FFIV this week and found myself disappointed today with my strategy execution, putting the trade on backwards in terms of how I normally execute it. Must have been the Colorado mountain air, lol.

So, now what? I certainly had several options to choose from. Here are a few:

  • Do nothing. Live with the 1/2 long position and manage it accordingly. Nothing wrong with doing this.
  • Sell June puts to finish off the trade (usually what I do, but I normally do this as a first step). Best to do this on a RED day for the underlying.
  • Sell June calls, thus making it a covered call trade. Best to do on a GREEN day for the underlying.

Making an adjustment to trade execution is not easy, especially when some of the trade is already on. After some consideration and review, I elected to go with selling the June 110 Calls for $2.78. Why this choice? Well the main rationale here is that I don’t like selling puts on a RED day for the underlying. By selling the calls, this is what I get:

  • Capped gain at 112.78 for the overall position through June expiration
  • The $2.78 in premium collected gives me downside protection below my initial entry ($109) to 106.22

One additional thing to note here. I do have a trail stop on the long stock position so one scenario is that the stop is taken out and I am left with a short June 110 call. Other scenarios to consider:

  • Stock can just go sideways and the premium decays on the short call
  • Stock can move up and potentailly cause the underlying to be called away
  • I can turn it into a Collar by using the premium collected to buy a downside June put

If you wonder what I am doing at times, hopefully this helps understand some of my thought processes.

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