I do a trade every Friday where the goal is for price to “pin” to a certain strike. At times I reference this as a “Bowling Pins” trade so if you see this from me this is what I am talking about.
Today I selected the September 14 weekly 640 Call in $PCLN to sell and did so — $3.20 in premium collected. For a look at how this option has traded today, here is a 60 minute chart:
- This takes margin
- There is risk associated to being naked short this call so it requires focus
- A stop should be used
- Sometimes I choose a Call, sometimes I chose a Put, and on rare occasions I have sold the straddle
Now with that said, I want to discuss item #3 and why it is so important. Since I am a big believer in using stops I had one set on this trade (a trailing stop). The problem is, I had it set wrong (normally 25% but I had it at 125%, ugh) and it cost me profit as price dipped under the $640 price level and then rebounded slightly.
The low has been $.29 and high has been $5.80 for the day. If I had this set correctly, it would have covered under $2 for a healthy profit.
So in summary, it is great to have a trade thesis and plan. Be sure that you when you execute the plan that you have dotted all the i’s and crossed all the t’s.