Hello everyone, I hope your Sunday and the week behind were peaceful. I’ll be brief today and simply leave you with the message we received today at church, Philippians 3:13-14. “Brothers and sisters, I do not consider myself yet to have taken hold of it. But one thing I do: Forgetting what is behind and straining toward what is ahead, I press on toward the goal to win the prize for which God has called me heavenward in Christ Jesus.”
Now, as we press forward to what lies ahead I wanted to introduce you to an options play I’m considering for the next few weeks. Moreover, it’s very possible to earn up to 10% in 47 days with this options play. All while taking minimal risk.
Let me explain.
Post Agenda
Collar Options Strategy
I’ll start by introducing the strategy I’m considering for the next few weeks. The collar options strategy is one of my 5 favorite options strategies because it provides income and downside protection. After that, I’ll introduce an alternative to the collar strategy I’m looking at and either play could earn up to 10% in 47 days!
To begin, I’m considering opening a long collar position on Intel (INTC) that expires on June 20. Here is the trade from the Thinkorswim order entry screen for complete clarity.
From above you can see that I’m looking to buy 100 shares of Intel at the current share price of $20.62, sell the $22 strike call, and buy the $17 strike put for protection. All of this comes out to a total share price of $19.82 or $1,987 dollars of capital. However, take notice that my maximum loss is only $287 and the max profit is $213 dollars. If all goes well, $213/$1,987 = 10.72% ROI in just 47 days!
I prefer playing the collar because the protective put is cheap and I can pay for it with the call. For just $26 dollars I can cut my losses off at any share price below $17 dollars and still keep the $61 dollars (short call $ – long put $) of income from the short call.
Finally, if all goes to plan, I’ll be out of these shares at the $22 dollar strike in just a few weeks. Though, its more than possible that Intel fails to trade that high, or lower than $17, in the next 47 days. If that happens, I’ll still have the shares and will be able to implement the exact strategy again to collect another nice “dividend” in the form of short call premium.
Alternative – Short Collar Strategy
As mentioned, this could be played the other way around as well. In the short collar options strategy the trader would just alternate each leg of the trade. For example, instead of buying 100 shares, they would be sold short. Instead of selling a call, a put would be sold and instead of buying a protective put a call would be purchased. Here is the trade from the Thinkorswim order entry screen.
In this variation of the collar strategy, I’m looking at selling short 100 shares of INTC at $20.62 per share. Then selling the $18 strike put, and buying the $24 strike call for protection. If price falls to $18 per share by June 20th I’ll keep the difference between $2,062 and $1,800, or $262 in profit, minus the cost of the protective call. Should price rally, my losses will be capped at $24 dollars per share.
It’s the identical strategy just played short. Meaning, if you’re immediately bearish on Intel the short collar is probably the better play. If you believed Intel would eventually trade above the short call the standard collar strategy is likely better. Either way, it’s very possible to earn up to 10% in 47 Days with this options play.
Covered Call Calculator Tool
To make my life simpler I created a very basic tool that helps me play out different scenarios. This covered call management tool is available for free on the free trading tools page, along with several other useful options spreadsheets.
Here is what’s possible with the collar position I’m considering in Intel.
With this helpful tool, I can easily keep track of my collar positions. Even if I continue to hold the shares longer than the intended 47 day period. In this instance, I know that my total out of pocket is $19.87 per share. However, if I didn’t I could simply enter the current share price and any options premium into the income column so that it’s calculated.
Additionally, if I didn’t close out the shares by entering the -100 in the buy shares column, I could see my average cost per share in the box to the right. Since I have zeroed out my position, that cell is blank and the ROR is shown. If Intel didn’t get called away, this allows me to keep a close eye on my share cost basis.
Regardless, the tool is available for free if you think it may help you as well. Feel free to check it out, again, at the free trading tools page.
Final Thoughts
Intel is about as unpredictable as any company could be right now. They just got a new CEO and they’re currently facing an unfavorable period in time. This makes an outright long position or a standard covered call mostly a non-starter for me. However, the covered call with the protective put at least assures me that losses won’t compound.
That said, I’m unsure of Intel in the short to intermediate term. Though, they’re priced low enough that I wouldn’t have to ear mark much capital to play. In the meantime, the collar strategy helps me earn a good income without much at risk. For instance, an extra $61 every 47 days would be an extra $427 of income this year alone. Expanding the math, $427/$2,062 = 20.7% annually. Far superior to the roughly 4% I’d earn in a savings account or a treasury ETF.
Just another way to earn up to 10% in 47 Days with this options play on Intel.
Until the next post.
God bless,
Jeff
