TRADE IDEA: GDX JUNE 16TH 18/FEB 17TH 25.5 POOR MAN'S ...
I'm not going to take this trade at the moment, because I'm trying to wind up current trades to move over to TastyWorks (formerly Dough). However, once I finish up that process, this is one of the trades I'm looking at, although certainly putting this on here isn't necessarily the best in terms of timing, since price has come bounced quite dramatically off that sub-$19 mark. In any event ...
Here, the long-dated, fairly deep in-the-money long call stands in for what would ordinarily be stock in a covered call situation. As with a covered call, a short call is sold against the stock position not only to reduce downside risk, but to reduce cost basis in the long option (currently priced at 5.98). However, the poor man's covered call is put on for much cheaper than a "rich man's" covered call; if you initiated one here, you'd buy 100 shares at 23.20 ($2320 and sell the same 30 delta short call against for a $63 credit, so you'd be tieing up around $2250 in buying power to go that route). In comparison, the buying power effect of this particular setup would be $535 as of the writing of this post -- about a quarter of what you'd pay to do the "standard fare" covered call.
The notion here is to roll the short call month to month (each time to the next month's 30 delta short strike) and then exit the position for at least 10-20% of what you put the play on for.
Notes: Ordinarily, I do these using a the 70 delta long in the "back month" and the 30 delta short in the "front month." Here, however, I'm tweaking the play somewhat to use obvious horizontal support around 18 as a guide for the back month strike.
Here, the long-dated, fairly deep in-the-money long call stands in for what would ordinarily be stock in a covered call situation. As with a covered call, a short call is sold against the stock position not only to reduce downside risk, but to reduce cost basis in the long option (currently priced at 5.98). However, the poor man's covered call is put on for much cheaper than a "rich man's" covered call; if you initiated one here, you'd buy 100 shares at 23.20 ($2320 and sell the same 30 delta short call against for a $63 credit, so you'd be tieing up around $2250 in buying power to go that route). In comparison, the buying power effect of this particular setup would be $535 as of the writing of this post -- about a quarter of what you'd pay to do the "standard fare" covered call.
The notion here is to roll the short call month to month (each time to the next month's 30 delta short strike) and then exit the position for at least 10-20% of what you put the play on for.
Notes: Ordinarily, I do these using a the 70 delta long in the "back month" and the 30 delta short in the "front month." Here, however, I'm tweaking the play somewhat to use obvious horizontal support around 18 as a guide for the back month strike.
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