Philip Davis

Options Trader: Friday Outlook

Cover - you do realize that this article is Friday the 8th, not the current day's article right?

WMT - at 9:41 yesterday, my comment to members was: "WMT so going the wrong way. What a relief as I thought my $57.50 callers were going to blow me out. This is so great! Let’s pick up 5 Sept $55s at $3 in the $10KX and the $25KP XXX"

So the adjustment to this play was that we had the coverage through earnings and, on the dip, we took out the caller at just .40 and then flipped bullish becuase it was silly for them to go down (see this Thursday's post for my general take on the morning sell-off).

Meanwhile, the March $57.50s were bought for $4.75 and we sold calls for $1 and bought them back for .40 so the net basis on the leaps is $47.15 and they are now worth $6.25, not a bad gain for a week!

Had you not bought back the caller, your basis would be $3.75 on the March $57.50s and you would owe your August caller $1.87, for a net profit of .63, still 17% in one week and not so awful but you can spend just .40 to roll your caller to the Sept $60 calls, now $1.50, which would leave you in the March $57.50s at $6.25 and about 25% covered with the Sept $60s. You can do that month after month so, even without the good timing (and luck) we had, it's a nice little income producer.