Following up on my blog entry on investing in a disfavored stock or INTC.
I posted up a trade involving the following components for an investor who wanted to accumulate a 1,000 shares but having loads of flexibility of adding on dips or a more clear investment picture:
Sell 1 October $17 put for a $0.38 net credit.
Sell 2 January 2011 $16 put for a $0.69 net credit per option
Sell 2 April 2011 $14 put for a $0.57 net credit per option.
Buy 5 January 2011 $20 calls for a $0.50 net debit per option
Sell 5 January 2011 $22.50 calls for a $0.13 net credit per option.
With an estimated $2,500 in margin requirements (assumption of $500 per put contract sold) at initiation of the trade, the trade has been very profitable indeed.
October $17 puts have expired worthless and thereby one collected $0.38 in net profits or $38.
The January 2011 $16 puts traded at $0.12 on the ask, lets buy those back and book profits of $0.57 or $57 per contract * 2 or $114 bucks.
The April 2011 $14 puts trade at $0.17 on the ask, lets buy those back and book profits of $40 per contract or $80 bucks.
The 5 strike $20-$22.50 call spreads were initiated at $0.37 or $37 bucks per spread. They are currently trading for $0.96 (selling at the bid on the $20's and paying the ask at the $22.50 strike) or a net profit of $59 bucks per spread. Lets close 3 of them out and let the two ride on the house for free.
This brings the total trade profits to:
$103 ($59 * 3 = $177 - $37 - $37)
Total profits on the trade with no capital at risk is $335 against the original margin requirements of $2,500 or a total return of 13.4% versus the stocks return of 14.91% since Sept 8th, 2010.
So while we have underperformed by about 1.5% in the same time period, we still have two call spreads left that can ride to the upside free of penalty.
That is one of my favorite trades, having a position that has good value, can still be traded around, and your holding it for free at no cost of capital.
If we closed out of the position entirely, then the trade I proposed would have returned 16.36% versus the stocks 14.91%.
More importantly as originally set up in this trade, one wasnt going to have a $17.90 cost average in INTC, the cost average of the investor shares would have been $15.19.
Overall, I am very pleased with the trade and I am super happy with the way my INTC positions worked out over this same time frame.
The reason for this post/hopeful article is to help other manage a winning trade and make better reasoned trades. Take stances but be smart about it. Also, I closed out of every single position I have had in INTC. So I am totally 100% out of INTC.
Good luck to those still trading INTC and I hope it runs up to the earlier targets mention in September. I may relook at entering back into some INTC positions this week but there are some better trading opportunities out there than INTC and given the heavy news events this week, its always better to close out trade that are massively profitable and dont have much left on the bone (such as the puts sold).
Disclosure: No positions in INTC at the time of writing