For those interested, this weekend we came across a well explained, and short, article on an options trading strategy whereby one buys a long term call and then sells short term calls repeatedly against it, all for the same stock.
Right now I think SHLD might make a new high, but I'm also concerned about a pullback so, if I were to go in today, I would want close protection.
The Jan '08 $145s are $39.60 so I'm effectively paying $184.60 for the stock -- a $21 premium. My goal over the next 15 months is to make $1.50 a month to work off the premium. In a regular month, when I'm bullish, I would the sell the Nov $165s for $7.50. That guy is paying a $9 premium for 45 days (sucker!) and I will have no trouble until the stock goes over $174 or under $156.
Basically he's making money due to different values given for different option contracts' duration. In the example above the longer term option costs $1.50 per month of duration, while the shorter term one which the author sells prices 45 days at $9, or $6 per month. While its not quite so simple, as we're sure the above author knows, since for example the next 45 days include the possibility for big price moves due to 3Q06 earnings, the article gives nice plain english description of how he goes about trades.
Very efficiently written post. It will be valuable to everyone who uses it, as well as myself. Keep doing what you are doing – looking forward to more posts.
share market
Posted by: share market | May 12, 2011 at 02:48 AM