MikeL 12:33 pm on Monday, November 11, 2019
Tags: SueCollar ( 10 )

@smasty Sue, what is your…

@smasty

Sue, what is your plan for TGT #suecollar trade?
With the earning coming up, puts are very expensive.

smasty 1:39 pm on Monday, November 11, 2019

Hi Mike L! It is time to start working on that, thanks!

The 106 calls for Dec 13 are deep in the money….but there is a TON of extrinsic in them, so the dividend next week looks safe despite how deep under they are.

One of the key things I look at when rolling the puts, especially when the calls are DITM is how much extrinsic is still in the calls. If there’s not much extrinsic left in the calls, then it doesn’t make sense to spend much on puts. In this case tonight, the 106 calls closed at $6.72 (110.45 on underlying), meaning there is $4.45 of intrinsic and $2.27 of extrinsic still in those calls. The Extrinsic ($2.27) plus the Dividend (.66) = $2.93 yet to collect on that position–by just sitting. But the puts expire this week, so there would be no collar.

Since I like to do things in thirds, I’d like to spend 1/3rd of that 2.93 for protection, = .98

Now, remember, we have 106 short calls at -4.45. That is a hedge already down to 101.55 (106 – 4.45).

I can do a Dec 13 102/96 Put Debit Spread for .93

If the stock crashes, there’s not perfect collar protection, but pretty good protection. If the stock stays steady or rises, the vol crush on the short 96 puts will bring in a nice profit, they can be closed and full protection into Dec 13 is re-established.

That’ll be my plan, will let you know specifics when executed.

Sue
- MikeL 2:23 pm on Monday, November 11, 2019
  
  Thank you Sue!
  - smasty 11:03 am on Wednesday, November 13, 2019
    
    I got my TGT spreads on right before the latest china vol just kicked in. More expensive due to the drop this week on TGT, but still w/in a 3rd of the extrinsic/div calculation. I did 102/96 spreads for $1.10.
    - CJD 8:06 am on Wednesday, November 20, 2019
      
      @smasty
      
      Hi Sue,
      noted your adjustment above, and the move to selling a put spread rather than buying a put. I didn’t like the risk/reward ratio, and had a sneaking feeling that TGT may move up rather than down – so I decided to ride earnings out without any downside protection. Your rationale of the short call cover already providing some downside protection resonated.
      
      As we know there was a strong move up after earnings release this morning. Decided to roll the short Dec 13 $106 call to the Apri 17, $110 for a $0.42 debit. So that’s $4 more upside and I get to stay with the stock for a while longer.
      
      My TGT stock was bought for $112.
      
      Now I start to buy puts at a much higher level – could be fun!
      
      Thanks again the trade and the thought process.
      
      #suecollar