A check-up in JC Penney

I have had a long stock position in $JCP since 4/11/2013 and have made a few adjustments along the way on the Option pieces. The most recent adjustment was a strategy that I have added to the Playbook this year involving being long stock and selling a Strangle. Here is the breakdown:

  • Be long the underlying stock
  • Sell an upside Call against the stock
  • Sell a downside Put where you are comfortable owning more stock (take into account the sold strike and all the premium collected from selling the strangle)

A few points to make about this strategy – and why I would do it when I did:

  • The stock is expected to be volatile so the Option IV is elevated so I would like to take advantage of selling some premium
  • I don’t mind owning more below but do want a hefty cushion
  • Being capped above is ok too as the premium collected gives a very wide range to trade

 

Here is the specific adjustment that I made, noted in this post here:

JCP_strangle_playI am long stock and sold the June 17 Call & 16 Put (the Strangle). I collected 2.70 in premium but some of this was used to close a short Call that already existed (covered call at the time). The net premium collected was $2.15 so this gave me a range of 13.85 to 19.15 until June expiration.

Here is the current price info on all 3 pieces to this trade:

  • The stock is at 18.48
  • The June 17 Call has a bid/ask of 2.27/2.30
  • The June 16 Put has a bid/ask of .54/.55

Things I am evaluating:

  • If left alone, the stock could be called away at any time given the short 17 Call strike is already ITM (in the money)
  • I am considering some cheap Puts to cover the short premium at the June 16 strike as well. The May 16 Put is currently $.12 so cheap insurance for the week. The June 15 Put is $.34 so more expensive to protect but creates a short Put Spread which would cap the downside risk

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