Most “Main Street beats Wall Street” readers know I have a 100 contract Naked Call on U.S. Steel (X). This Call has a Strike Price of $21 and an Expiration Date of January 20, 2017. When you have a Naked Call you are always worried and want to cover the Call if you get a good opportunity to do so. I planned on covering this Call if the stock went down to $20. Well, with X hanging around the $21 area I just sold a $20 Put. If I’m going to buy the stock at $20, I might as well get a premium for buying the stock, if I can! I sold the X 8/26/16 $20 Put and received a premium of $.20 for a Total of $2000. If the stock goes below $20 by this Friday I’ll have the 10,000 shares put to my account and my 100 contract Naked Call will be covered. If it stays above $20 I keep the $2000 premium and continue to have a Naked Call. Since I planned on buying the stock at $20, I give this trade a Risk Factor of 1. Here’s the Put sell order:
Sell to Open 100 X 8/26/16 $20 P @ $.20 (+$2000)
Steve
The Options Coach