I often get questions regarding the strategy where I:
- sell stock (partial, like 1/2 size)
- then sell a Straddle or Strangle (1/2 size each)
In this example I am trying to accomplish several things:
1) ease in to the position (in this case, a short stock position on a stock that has risen a LOT recently)
2) I want to create a cushion – using Options – for those times where I am early or I am hoping to get more/additional stock at a reduced price (Put the stock)
In this example I am short $CONN at 77.50 and I then later sold the December 75 Straddle (1/2 size each). This means the short Calls are not covered:
By taking this approach I get some significant Option premium that provides me a nice range for Price to move in. Ideally I want the price to decline into expiration next week. Why? Because I am short stock, the gain on that would offset the increase in the Put price. However, the $3.95 credit is mine to keep PLUS the gain in the short stock piece from $77.50 to $75.
Into the close it appears that price continues to hug the $75 price level so this works well for my trade into next week.