Well this is a pretty convoluted trade to be honest but I have not tried this idea before. Today I bought CGC for $45.50 and earnings are after the bell. I immediately sold a 40 strike call in April for 8.35 ($5 of intrinsic value and $3.35 of time value or extrinsic value) I chose an "in the money" call strike because I think this stock has a good chance of some heavy profit taking. I then went into a separate trading account and sold a put butterfly right at the expected move of +/- $10.50 for the April expiration for .68 cents debit. The "guts" of this put butterfly was on the 35 strike. So if CGC stays above $40 I will collect 2.17 (2.00 after all these commissions really) by April. The butterfly may provide an interesting hedge should the stock drop as I will try to sell it for around 2.00 as well. Not sure how volatility and theta will work here exactly as time decay is really slow for flys' but the intrinsic value for the long 40 put to the 2 short 35 guts of the fly is where the trade makes most of it's money. Wish me luck
Comment:
Today I sold CGC for 45.02 (below cost by .50) and bought back the 40 call for 6.75 (1.60 gain) due to how fast the stock has been dropping and how much premium came out of the call after earnings. This would give me a small profit of .40 if you didn't count the put butterfly I bought for .68 but is still worth about .65 if sold today. I am not surprised with 41 days left this has not moved much, as is the case with the butterfly trade. Since volatility is still pretty high 62% I decided to sell 3 puts in April at the 35 strike for .80 each. If tested I will look to pull off the butterfly and maybe reduce units by 1 lot which net/net means give up some of the profit from the fly and buy back one puts at a loss but it really depends how quickly I am tested........if it happens too quickly I will not get as much from the fly and the puts will swell making me have to take assignment or roll out in time. Basis has only been reduced by ~3.00 so far so I am still trying to stay nimble and this is why I mention that I may choose to shift to only wanting to take 2 of the 3 lots if pressed. Also I should mention that these trades are in separate accounts because the commissions in Fidelity would kill me for the fly and you can not be cross-striked (being both long and short the 35 puts) in a single account. Keep Calm and Trade On.
Trade closed manually:
The 3 puts I sold at the 35 strike for .80 were closed for .46 today......this was not the price target of 50% and not really per my trade rules. I did not like the price action for CGC nor the overall market price action for triple witching week as well. I still have the put fly and may step in again to sell puts at the 35 level if we get more weakness and use the fly hedge one last time but you never know what the market will give you.