Selling Option Premium starring Twitter

One of the key elements to my Trading Process involves the selling of Option Premium. There are a variety of scenarios where I incorporate Options with stock in an overall trade, but there are situations where I just want to sell Options (I take a Neutral stance, don’t care on direction at all).

When it was announced that $TWTR would be offering Options for trading on 11/15 I  devised a plan on what I wanted to do. I ultimately decided on selling a Straddle:

TWTR_trade

The goal is simple here: I want the price to stay within a range of $39.97 to $45.03 by Friday expiration (Straddle price +/- Option cushion). Here is a Daily chart showing the price range I am looking for by Friday expiration:

TWTR_B

Here are a few scenarios that show what my next step would be:

1) Price continues sideways into Friday expiration. I would buy back any “winning” piece cheap & resell a new Straddle for the December 6 Weekly expiration. This would increase the Option cushion

2) Price falls to $41 into Friday expiration. I would buy back the “winning” Puts & resell a new Straddle for the December 6 Weekly expiration. Depending on the strike(s) chosen, this could increase the Option cushion

3) Price rises to $44 into Friday expiration. I would buy back the “winning” Calls & resell a new Straddle for the December 6 Weekly expiration. Depending on the strike(s) chosen, this could increase the Option cushion

 

Note: This trade takes margin. There also may be situations where I hedge with stock (any breach of $40 below or $45 above).

One thought on “Selling Option Premium starring Twitter

  1. Looks like it is #2 basically so far. I have done this adjustment today: BtO November 29 Weekly 42 Calls for .10 (almost the same as BtC 42.5 so this makes more sense), BtC November 29 Weekly 42.5 Puts, and finally StO December 6 Weekly 40 Straddle. This was done for a $.45 debit. Options Net is now +$2.08

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