To understand this Triple Play Hedge trade, you should first read the page on the site. And you should understand what hedging is. For me to completely explain my Triple Play Hedge, this post, which is an email, will get too long. Basically, when you hedge a position you get into a second position that will make money if your original position doesn’t move in the direction you anticipated. Hedging is insurance and it cost you money, as any insurance would. My Triple Play Hedge gives me insurance without paying, and actually I get insurance and get paid for it.
I hope you hit the link and you read my page on the strategy Triple Play Hedge.
With this strategy I sell 3 Call Options on the same stock with the same amount of contracts with different Strike Prices and Expiration Dates. In this case I sold my Calls on U.S. Steel (X). Each option involved 50 contracts (Do not get intimated by the amount of my contracts I’m dealing with, I’m in this game a long time. Read my page Grasshopper). Below are the 3 options I sold. Also read my page Option Order Form. It’s very important you understand all parts of the Order Form. Here’s the 3 sell orders:
Sell to Open 50 X 4/8/16 $17 C @ $.40 (+$2000)
Sell to Open 50 X 4/15/16 $17.50 C @ $.55 (+$2750)
Sell to Open 50 X 4/22/16 $18 C @ $.65 (+$3250)
The”X” can be a little confusing buy X is the ticker symbol for U.S. Steel.
In addition to the 3 options I sold, I bought 5000 shares of U.S. Steel to cover my first option. The result is I have 1 Covered Call and 2 Naked Calls. Here’s the order to buy the 5000 shares:
Buy 5000 shares X @ $16.85
The first option I give a Risk Factor of 1 because it’s a Covered Call. The next 2 I give a Risk Factor of 4 because they’re Naked Calls. If the stock goes up I’ll cover the 2nd and 3rd options as I go. If the stock goes down and the 1st option expires, than my 2nd Call will be covered. Stay tuned to see how this plays out!
The 2nd and 3rd Calls are insurance against my Covered Call which is the 1st option covered by the 5000 shares I bought. My big fear with Covered Calls is my stock going down big. If this happens the Call expires and I keep the entire premium but I’m holding a stock that is lower than where I bought and who know how long it will take to recover. I might be holding the stock for months. Adding the 2nd and 3rd Calls gives me insurance because they are Naked. Being Naked is the key! If the stock goes down so does all the Calls. Since they are SHORT positions, when the stock goes down the short position gains value. This gain in value makes my positions worth more money. Please read my page called Long & Short Positions.
I know this can be confusing for you Grasshoppers but don’t get discouraged! This is great stuff and we will make a lot of money together. Make sure you read the pages I have linked and email me any questions. If I don’t get an email on this Triple Play Hedge I’ll know I’m losing you or I have some very experienced traders following my site. Also email me if you don’t understand why being Naked on the 2nd and 3rd Call Options is the key.
Steve
The Options Coach