Income Options Strategy
STRATEGY: Buy a stock, sell a call at-the-money or slightly out-of-the-money and sell a put at a strike price with a probability of assignment of less than ten percent.
OUTLOOK: Expecting the stock to trade in a channel such that the call is assigned and the put expires worthless.
ACTIONS: If both the call and put expire, sell another call and put a week to ten days out for income generation.
If the call expires and the put is assigned, sell calls on the full position at a strike price that is approximately ten percent above the current market price going out no more than one month.
If the call is assigned, review this or another candidate for a new covered call and naked put opportunity.
PROFIT: If the call and put expire, the return is the call and put option premium received. If the call is assigned the return is the call and put option premium plus any price appreciation in the stock which is limited by the strike price of the call sold.
RISK: Risk is related to stock ownership. It is reduced by the amount of the call and put option premium received. To exit this trade buy the call back to close and sell the stock. Wait for put expiration or sell the position when assigned.
BREAKEVEN: Stock purchase price less the call and put option premiums received.