Last week I mentioned that I took an option assignment on my JP Morgan (JPM) naked put. I sat on the shares for a little while trying to decide how to make my next move. I thought JPM might have some more upside, which it has since I was forced into buying the shares, but was [...]
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Last week I mentioned that I took an option assignment on my JP Morgan (JPM) naked put. I sat on the shares for a little while trying to decide how to make my next move. I thought JPM might have some more upside, which it has since I was forced into buying the shares, but was also still nervous about adding any more shares. I decided the best option was to sell both a new naked put and a covered call (an option strangle plus long 100 shares). While JPM was trading at .43 my order hit and I sold one JPM August 37 naked put at .18 and sold one JPM August 42 covered call at $content.90 and received 5.67 after commissions.
After buying my first 100 shares at .00 I left the emotional aspect of wanting to finish the series of trades with a profit out of my decision making process. I think JPM is close to fairly priced where it is now (unless some new regulation hits that hurts it worse than I expect). Based on that assumption I figured selling my 100 shares for than .50 higher than they are now would be a good thing. The same goes for buying almost .50 lower than the current price. I gave myself a wide range to have both of these options expire worthless at the same time.
I took in .85/share from the original naked puts and .05/share from this strangle if the naked put isn’t assigned. That gives me a current cost per share of .10 if JPM stays above .00. If the new naked put is assigned I’ll have 200 shares including the 100 shares I’ll have to buy at .00. That’ll bring my cost per share down to .55 if JPM doesn’t stay above .00. I’ll still be in a hole, but closer to the trading price by then. I doubt I’d sell any more naked puts to add more shares, but will certainly plan to sell new covered calls in that situation.
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