Buy-Write as a Day Trade: It’s Not Just Your Grandma’s Strategy

With the increase in weekly options available there are now more opportunities then ever to take advantage of the mis-pricing of risk. One trade the sleepy old buy write can make a lot of sense, especially for stocks that you want to get into as position or swing trades. I am not talking about buying IBM and selling calls out for August Expiry or even longer. But with tomorrow being Friday and a weekly expiry there are opportunities to pick up 40, 60 , 80 even 100 bps of return on an overnight position. That is 100-250% annualized return. Buy-Write is not sounding to sleepy anymore huh? Let’s look at a few examples.

Apple, $AAPL

Apple, $AAPL, seems to be everyone’s favorite stock. And with the pullback Thursday seen in the chart many will be looking to buy the dip. You could just buy it at $391.82 the closing price, or consider that the weekly options maturing Friday offer a better entry. If you are biased to an up move Friday then you could also simultaneously sell the 395 Strike Call, the Buy-Write, at $1.22 for a net cost of $390.60. If the stock closes over 395 then you get called away but make 4.40, a 1.13% return for the day. If you want to be more certain that you are called you could sell the 390 Strike Call that closed at $3.50 Thursday, making your cost basis $388.32 and would be called away for $1.68 or a 42 basis point return.

Google, $GOOG

Google, $GOOG, is another crowd favorite that pulled back on Thursday. Buying at the $610.94 closing price can be improved on this stock by selling the weekly 610 Strike Call for $3.50, making your cost basis $607.44. If you are called away at 610 then you net $2.54 or 42 basis points. Alternatively selling the 615 Strike Call against the stock purchase for $1.65 would make your basis 609.29 and if called away at 615 could return 94 basis points. One more

General Motors, $GM

General Motors, $GM, is a bit less popular but if you think that the leveling Relative Strength Index (RSI) and Inverted Hammer posted on the daily chart are going to hold and reverse then you might buy it here at $28.10. But by selling the weekly 28 Strike Calls against it for 27 cents, you basis is lowered to $27.83 and if called at 28 receive a return of 60 basis points.

These Option prices and stock prices of course will vary so these returns are not guaranteed. But the point is that there are now many more opportunities to Buy-Write for a one or two day trade on a weekly basis. This is not just a monthly trade for long term positions but can be used as a short term trading strategy to either lower entry costs or lock in overnight gains. Keep your eyes open for these opportunities in the stocks you are trading.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Dragonfly Caps Blog