#Fuzzy #SyntheticStock – No that’s not another California wildfire you smell…it’s me thinking! I’ve got a small list of tickers that I would be very interested in adding a Fuzzy or synthetic position to. With earnings coming up on all of these I was considering selling some aggressive puts down in areas I would like to add the Fuzzy anyway. Kinda like selling puts to acquire stock and then writing covered calls.

Since I tend to have bigger synthetic positions than I would with real stock, these put sales look like they could be quite profitable if the stock doesn’t happen to pull back enough. Another option would be to sell spreads too…then if the stock implodes the Fuzzy wouldn’t be down hardly any at all when it gets set. Or…sell naked puts at half size and then if the stock implodes add the other half down at that level. Either way…just roll the loss into the basis of the Fuzzy if the stock really drops…otherwise enjoy the huge gains from the put sales.

For example, one of my all time favorites is NVDA. Great premium and easy to roll. I would really be interested in going long starting down at the 200 level and adding below that. Let’s also assume that a 6 lot would be my max synthetic size.

I could sell a put ladder starting at 215 (or anywhere depending on appetite for risk) and then every 5 points below that down to 190. Premium would be about 19 dollars. Great trade if the stock rallies. If the stock tanks then put the synthetic on there while rolling the put sales into the basis. Obviously the trade would start out underwater similar to covered stock…which is ok. Plenty of time to sell weeklies to eventually profit.

I guess the point of this whole thing is that there may be some tickers you like that won’t come back enough to get an entry point. Selling the puts while waiting could pay off quite nicely too.

#SyntheticStock – Not really using LEAPS and probably too long of a duration to qualify as a #Fuzzy. More of a hybrid here….thanks @smasty for the idea.

Sold KR JUL 20 2018 28.0 Puts @ 2.27
Bought KR JUL 20 2018 28.0 Calls @ 2.68
Bought KR JUL 20 2018 26.0 Puts @ 1.44

This gives a net debit of 1.85 for the Jul 2018 position. Add the 2 point max downside and get a max loss possibility of 3.85. Based on that, and the 27 weeks remaining in the trade I only need to average about 14 cents per week in sales to cover the absolute worst case scenario. I’m adding a small hedge out a couple weeks. This would keep me on pace for weekly sales to cover max loss but also still give the trade long deltas all the way up to about 30.75.

For some reason, I don’t have the ba**s to carry these completely unhedged. For now I’m changing it up a little by selling the first hedge with a lot of room instead of being so aggressive right out of the gate.

Sold KR JAN 26 2018 29.5 Calls @ .25

#Fuzzy – Still no position but getting perky.

Jan 2020 20/20/18 #SyntheticStock only requires 3.5 cents per week to cover core and max loss. Hmmmm…

Missed the segment on TT this morning about utilities. Searched back through the forum here and see some of you guys have played it over the last year or two.

Looking like a nice possibility as a #SyntheticStock or a #Fuzzy. Probably low risk and slow moving for a long term play…

For example:

Jan 2020 52/52/50 Synthetic would only require selling about a nickel per week to cover max loss. Take the trade with a decent size and get a little bounce could be a nice winner.

Scroll to the very bottom for the Cliff’s notes if you’d like… 🙂 🙂

#SyntheticStock #Fuzzy – While criss crossing the country this week I’ve had plenty of time to think about things (besides the mountains around Eagle CO and the cyclone in NYC…LOL)

I’ve got a couple synthetic long positions where the weekly call sale has gone ITM. Not surprising in this market but still annoying. Most of the trades are still profitable but it’s more fun when they are REALLY profitable. So…what can I do once they’re so DITM that rolling up and out becomes nearly impossible?

I’m going to use my most extreme example here…

Currently holding AMZN Jun 2019 synthetic short at 1050. It started out as 1000 synthetic but I rolled up a couple months ago to bring a little cash back in. For quite awhile I was selling weekly calls around the 950 to 1000 level while AMZN chopped around down there. They then had an earnings surprise and stock took off and hasn’t stopped since.

My current short call is Jan 2018 monthly at 1010. Obviously DITM so what can I do?

When looking at the overall position and imagining this at expiration, my profit is capped at the level of the short call so the goal is to get that as high as possible.

My plan is to roll the synthetic up to a level I’m comfortable with as far as AMZN support goes. Then…take the credit and use it to roll the ITM short call up. This accomplishes two things. First, the call can be rolled for around even and up a slightly greater distance than the synthetic moves up. Secondly, the short call becomes less DITM so it becomes more rollable in the future (that’s the most important thing I think).

So…what’s the risk? An AMZN implosion is the risk…LOL. For now I’m not rolling up the disaster put since the DITM short call actually provides a nice hedge of it’s own on pullbacks. If the short call were to become out of the money then that might be a signal to ease the disaster put up. Until then, I’m not wasting cash on it.

Hopefully I’ve explained this ok. Other than the free fall of the stock, are there other risks I’m not seeing or considering? It seems to be a reasonable shot at capturing further upside with limited risk increase. I haven’t run the numbers yet on cheaper stocks but looking at VRX now…

Long story short…roll up the synthetic and use the credit to roll up the DITM call IF and only IF you’re confident in the stock holding it’s upside move.