Trade Review in Conns Inc.

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:
CONN_tradeBy 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.


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