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7/28/2019 Ds Diagonal Income Gne
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Sheridan Options Mentoring, Inc.www.SheridanMentoring.com
Income Generation Series:Income Generation Series:
The Covered WriteThe Covered Write
Sep 15, 2011Sep 15, 2011
Dan SheridanDan Sheridan
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Options involve risk and are not suitable for all investors. Prior to buying or selling anoption, a person must receive a copy of Characteristics and Risks of Standardized
Options. Copies are available from your broker, by calling 1-888-OPTIONS, or from The
Options Clearing Corporation at www.theocc.com. The information in this presentation
is provided solely for general education and information purposes. Any strategies
discussed, including examples using actual securities and price data, are strictly forillustrative and educational purposes. In order to simplify the computations,
commissions and other transaction costs have not been included in the examples used in
this presentation. Such costs will impact the outcome of the stock and options
transactions and should be considered. Multiple leg strategies involve multiple
commission charges. Investors should consult their tax advisor about any potential tax
consequences. No statement within the presentation should be construed as a
recommendation to buy or sell a security or to provide investment advice. Supporting
documentation for any claims, statistics, or other technical data is available from
Sheridan Options Mentoring at www.sheridanoptionsmentoring.com. Chicago Board
Options Exchange, Incorporated (CBOE) is not affiliated with Sheridan Options
Mentoring or OptionNet. This presentation should not be construed as an endorsement or
an indication by CBOE of the value of any non-CBOE product or service described in
this presentation.
DisclaimerDisclaimer
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Download The Presentation Slides!Download The Presentation Slides!
Download these slides at
http://www.sheridanmentoring.com/x/391
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Outline: Covered Write with all OptionsOutline: Covered Write with all Options
What is the proper name?
What’s a good vehicle to use?
Assignment problems on the upside?
Adjustments on the downside?
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AAPL Price ChartAAPL Price Chart
Date: 9/13/2011Date: 9/13/2011 AAPL Price: $384.62AAPL Price: $384.62
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Diagonal ExampleDiagonal Example
Date: 9/13/2011Date: 9/13/2011 AAPL Price: $379.94AAPL Price: $379.94
Options Price IV Delta Trade Price IV Delta Trade380 Calls $18.73 38.3% 52.5 -2
315 Calls $74.08 44.7% 82.7 +2
OCT(38) DEC(94)
Delta 60.4
Gamma -1.1
Theta 25.6
Vega 1.1Debit 11,070
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Diagonal Example 20 Days in FutureDiagonal Example 20 Days in Future
20 Days in thefuture (Oct3)
OCT Expiration
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What is the Proper Name?What is the Proper Name?
Covered write with all options
Synthetic covered write
Long Diagonal
Diagonal
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WhatWhat’’s a Good Vehicle to Use?s a Good Vehicle to Use?
Stocks you would buy in your retirement account
Stocks with lower beta than the market
Stocks with Implied Volatility under 30
Stocks over $50
Good liquidity in the options
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Assignment Problems on the UpsideAssignment Problems on the Upside
Really isn’t a problem!
If you do get assigned on short , just sell out long
call and buy in short stock,DO NOT EXERCISE LONG CALL!!
Monitor time premium of short option
Time premium goes under .30 , be on alert!
Dividends?
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AAPL Price ChartAAPL Price Chart
Date: 5/31/2011Date: 5/31/2011 AAPL Price: $347.83AAPL Price: $347.83
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Diagonal Example for AdjustmentsDiagonal Example for Adjustments
Date: 5/31/2011Date: 5/31/2011 AAPL Price: $347.83AAPL Price: $347.83
Options Price IV Delta Trade Price IV Delta Trade350 Calls $9.08 20.6% 48.2 -2
305 Calls $48.38 28.1% 82.7 +2
JUL(45) SEP(108)
Delta 69.0
Gamma -2.2
Theta 9.6
Vega -0.4Debit 7,860
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Diagonal Example for AdjustmentsDiagonal Example for Adjustments
Date: 5/31/2011Date: 5/31/2011 AAPL Price: $347.83AAPL Price: $347.83
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PlanPlan
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Why Adjust?Why Adjust?
Date: 6/3/2011Date: 6/3/2011
AAPL Price: $343.44AAPL Price: $343.44Starting Price: $347.833 Days in Trade
Options Price Entry Pr IV Trade Price Entry P IV Trade
350 Calls $7.60 $9.08 22.4% -2
305 Calls $45.23 $48.38 29.4% +2
JUL(42) SEP(105)
Delta 76.2
Gamma -2.0
Theta 9.7
Vega 12.5
Debit 7,860Loss 335
Loss 4.26%
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Why Adjust?Why Adjust?
Date: 6/3/2011Date: 6/3/2011
AAPL Price: $343.44AAPL Price: $343.44Starting Price: $347.833 Days in Trade
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Adjust #1 Roll DownAdjust #1 Roll Down ½½ Short StrikeShort Strike
Date: 6/3/2011Date: 6/3/2011
AAPL Price: $343.44AAPL Price: $343.44Starting Price: $347.833 Days in Trade
Options Price Entry Trade Adj Net Price Entry Trade Adj Net
350 Calls $7.60 $9.08 -2 +1 -1
345 Calls $9.88 -1 -1
305 Calls $45.23 $48.38 +2 +2
JUL(42) SEP(105)
Delta 76.2
Gamma -2.0
Theta 9.7
Vega 12.5
Debit 7,860
Loss 335
Loss 4.26%
Before AdjustingDelta 68.6
Gamma -2.0
Theta 10.2
Vega 11.5
Debit 7,632
Loss 335
Loss 4.26%
After Adjusting
NOTE: Loss % based on highest Margin Used
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Adjust #1 Roll DownAdjust #1 Roll Down ½½ Short StrikeShort Strike
Date: 6/3/2011Date: 6/3/2011
AAPL Price: $343.44AAPL Price: $343.44Starting Price: $347.833 Days in Trade
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Adjust #2 Roll Down all of Short StrikeAdjust #2 Roll Down all of Short StrikeDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Options Price Entry Trade Adj Net Price Entry Trade Adj Net
350 Calls $7.60 $9.08 -2 +2
345 Calls $9.88 -2 -2
305 Calls $45.23 $48.38 +2 +2
JUL(42) SEP(105)
Delta 76.2
Gamma -2.0
Theta 9.7
Vega 12.5Debit 7,860
Loss 335
Loss 4.26%
Before AdjustingDelta 61.1
Gamma -2.0
Theta 10.6
Vega 10.6Debit 7,404
Loss 335
Loss 4.26%
After Adjusting
NOTE: Loss % based on highest Margin Used
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Adjust #2 Roll Down all of Short StrikeAdjust #2 Roll Down all of Short StrikeDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
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Adjust #3 Turn into Collar ( Buy Put)Adjust #3 Turn into Collar ( Buy Put)Date: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
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Adjustment #4 Buy Put Debit SpreadAdjustment #4 Buy Put Debit SpreadDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Options Price Entry Trade Adj Net Price Entry Trade Adj Net
350 Calls $7.60 $9.08 -2 -2
305 Calls $45.23 $48.38 +2 +2
335 Puts $7.00 +2 +2
315 Puts $2.45 -2 -2
JUL(42) SEP(105)
Delta 76.2
Gamma -2.0
Theta 9.7
Vega 12.5Debit 7,860
Loss 335
Loss 4.26%
Before AdjustingDelta 34.2
Gamma -0.8
Theta 2.3
Vega 45.2Debit 8,770
Loss 335
Loss 3.82%
After Adjusting
NOTE: Loss % based on highest Margin Used
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Adjustment #4 Buy Put Debit SpreadAdjustment #4 Buy Put Debit SpreadDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Adj Add P C l d OTM
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Adjustment #5 Add Put Calendar OTMAdjustment #5 Add Put Calendar OTMDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Options Price Entry Trade Adj Net Price Entry Trade Adj Net
350 Calls $7.60 $9.08 -2 -2
305 Calls $45.23 $48.38 +2 +2
330 Puts $5.40 -3 -3 $10.38 +3 +3
JUL(42) SEP(105)
Delta 76.2
Gamma -2.0
Theta 9.7
Vega 12.5Debit 7,860
Loss 335
Loss 4.26%
Before AdjustingDelta 60.7
Gamma -3.0
Theta 14.0
Vega 66.5Debit 9,354
Loss 335
Loss 3.82%
After Adjusting
NOTE: Loss % based on highest Margin Used
Adj Add P C l d OTMAdj t t #5 Add P t C l d OTM
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Adjustment #5 Add Put Calendar OTMAdjustment #5 Add Put Calendar OTMDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Adj t t #6 Add P t Di lAdj t t #6 Add P t Di l
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Adjustment #6 Add Put DiagonalAdjustment #6 Add Put DiagonalDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Options Price Entry Trade Adj Net Price Entry Trade Adj Net
350 Calls $7.60 $9.08 -2 -2
305 Calls $45.23 $48.38 +2 +2
340 Puts $14.30 +2 +2
325 Puts $2.45 -2 -2
JUL(42) SEP(105)
Delta 76.2
Gamma -2.0
Theta 9.7
Vega 12.5Debit 7,860
Loss 335
Loss 4.26%
Before AdjustingDelta 35.8
Gamma -2.2
Theta 10.1
Vega 64.7Debit 9,884
Loss 335
Loss 3.39%
After Adjusting
NOTE: Loss % based on highest Margin Used
Adj t t #6 Add P t Di lAdj t t #6 Add P t Di l
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Adjustment #6 Add Put DiagonalAdjustment #6 Add Put DiagonalDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Adj t t #7 N th Di lAdj stment #7 Narro the Diagonal
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Adjustment #7 Narrow the DiagonalAdjustment #7 Narrow the DiagonalDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Options Price Entry Trade Adj Net Price Entry Trade Adj Net
350 Calls $7.60 $9.08 -2 -2
320 Calls $33.90 +2 +2
305 Calls $45.23 $48.38 +2 -2
JUL(42) SEP(105)
Delta 76.2
Gamma -2.0
Theta 9.7
Vega 12.5Debit 7,860
Loss 335
Loss 4.26%
Before AdjustingDelta 58.2
Gamma -1.7
Theta 7.3
Vega 35.3Debit 5,594
Loss 335
Loss 4.26%
After Adjusting
NOTE: Loss % based on highest Margin Used
Adj stment #7 Narro the DiagonalAdjustment #7 Narrow the Diagonal
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Adjustment #7 Narrow the DiagonalAdjustment #7 Narrow the DiagonalDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Adjustment #8 Roll Out to Next MonthAdjustment #8 Roll Out to Next Month
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Adjustment #8 Roll Out to Next MonthAdjustment #8 Roll Out to Next MonthDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
Options Price Trade Adj Net Price Adj Net Price Trade Adj Net
350 Calls $7.60 -2 +2 $13.13 -2 -2
305 Calls $45.23 +2 +2
JUL(42) SEP(105)AUG(77)
Delta 76.2
Gamma -2.0
Theta 9.7
Vega 12.5Debit 7,860
Loss 335
Loss 4.26%
Before AdjustingDelta 67.7
Gamma -0.9
Theta 6.1
Vega -21.7Debit 6,754
Loss 335
Loss 4.26%
After Adjusting
NOTE: Loss % based on highest Margin Used
Adjustment #8 Roll Out to Next MonthAdjustment #8 Roll Out to Next Month
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Adjustment #8 Roll Out to Next MonthAdjustment #8 Roll Out to Next MonthDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
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#9 Take Off Spread#9 Take Off Spread
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#9 Take Off Spread#9 Take Off SpreadDate: 6/3/2011Date: 6/3/2011 AAPL Price: $343.44AAPL Price: $343.44
Starting Price: $347.833 Days in Trade
22--Week Free TrialWeek Free Trial
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22--Week Free TrialWeek Free TrialSee WhatSee What’’s on the Other Sides on the Other Side
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See for yourself how we can help take your option trading to thenext level.
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Upcoming SeminarsUpcoming SeminarsReal Trading with Dan Sheridan
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Dan SheridanDan Sheridan
+1-800-288-9341
[email protected]@SheridanMentoring.com
Sheridan Options Mentoring, Inc.
http://www.SheridanMentoring.com/