BX – Calls instead of Stock with Protection – test case

Started on July 10th 2020. BX stock price @ $53.60. Ended on November 13th 2020. BX stock price @ $56.16

Stock price range during the period was $50.65 low, $59.10 high. Trading within that channel saw a couple of strong up and downtrends (more rolling than I expected).

Opening transaction: Buy 1x Dec 18, 2019; 40 Call (cost $15.75) / 55 Put (cost $6.45) Long Strangle Stock Replacement + Put protection, debit cost $22.20.

Close out transaction was a credit of $17.40 ($15.64 calls, $1.76 puts) – so the Puts suffered more from time decay and a lower VIX (my assumption).

Over the period 49 Buy/Sell (split 50% Buy / 50% Put) transactions made with a net final total profit of $0.76 per contract (10 contracts = $760).

Strategy was selling 1x weekly calls and 0.5x weekly puts – rolling as required.

In this case, Buy and Hold w/o protection would have been a more profitable strategy.

A couple of takeaways, and it is relevant for a #sleepatnight strategy.

  1. DITM Collar trades pay off more to the downside (the combined short deltas of short calls + long puts) so great for an averaging down strategy.
  2. Overcoming time decay on the long puts is a challenge and a balancing act, particularly in a period of rapid stock price appreciation as one has to deal with both short calls and long puts being challenged.
  3. Depending on risk tolerance careful analysis is needed on the strike prices of the short calls and long puts in a collar trade.