#SyntheticShortStock #WeekendReading

I am officially in timeout with Fidelity in my IRA for the next 90 days on these types of trades. I can still do about anything else until then though. Here’s the summary of the live trades.

Two entries synthetic short stock with a protective call.

Jan 12 4800/4800/5300 @ $5100 debit (2025 expiration)
Jan 23 4900/4900/5400 @ $11600 debit (2026 expiration)

Closed all positions on the Mon Feb 5th morning dip:

$4300 credit (2026 profitable and 2025 slight loss)

Total premium for 3 weeks of daily selling:

$14700 (4900 per week avg)

So:

$19000 credit vs $16700 debit ($2300 gain total) in pretty much a straight up market.

My thoughts:

Perfect time to try these with market at lifetime highs. Max loss on each position is debit paid plus width of call spread. (55100 and 61600 in these cases) That sounds like a lot but bringing in 4900 a week max loss is covered in about 6 months with 18 months and 30 months still to run.

Super aggressive play is to add another one (2027) when max loss is covered then sell 3 a day against that to cover max loss very quickly. Then add a fourth and fifth if you want. Could possibly have four running by next fall with little risk.

Rough math for just my two positions continuing without adding anything new.

$2450 per week each in premium received.

104 weeks for first position: 254800 total premium.
156 weeks for second position: 382200 total premium.

637000 total minus max loss = 520300 net gain if max loss is hit.

How is this all margined in an IRA?

1. Max width of call spread (50000) per position in these cases.

And

2. Width of daily put sale from long LEAP put. AS THE MARKET RISES THAT REQUIREMENT WILL INCREASE.

What risks do I see?

In a down market the daily put sales will need to be rolled down. That will cause less long term premium to be booked but at least the synthetic short is rocking. I could see that being an issue near expiration if your synthetic short stock is waaay out of the money and your daily put sale is way above that. Might be better to do these at the max expiration (Dec 2029 right now) and close them about a year prior to expiration where in most cases max loss probably hasn’t been hit yet. Could still have two or three running at once all the time.

I’ll continue paper trading these and see how it goes. So far so good!