I have been trading $FCX this week after the M&A news. I am currently long the stock (a 2/3 position) and today I have sold the December 7 weekly 31 Straddle (Call & Put) – a 1/3 size position. I have traded 2 Options pieces already, producing a $1.39 additional cushion for the overall trade.
Here is the logic behind this recent Option piece:
By selling the December 31 Put (a 1/3 position) this would bring me to a Full size position if Put the stock. However, by selling a 1/3 position in the December 31 Call I am capping my gain on a part of the long stock position.
Selling this Straddle produced $1.05 in premium collected, more cushion, and I will manage this through expiration tomorrow. Here are a few scenarios of how this can play out at expiration:
- Price is above $31 at expiration. Part of the long stock is called away (If I don’t buy the Call back). The Short Put side expires and I would then keep all the premium collected, capping the called away stock at 32.05 – this would leave me with a 1/3 long stock position.
- Price is below $31 at expiration. I would be Put the stock (unless I buy the Put back). The Short Call side would expire and I would then keep all the premium collected from that piece. If Put the stock, I would own the stock at 29.95 for a 1/3 position size. This would leave me with a full long stock position with a cost basis at 30.24 overall.