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SPDR S&P Retail ETF Message Board

robertat40 1 post  |  Last Activity: Sep 18, 2014 3:56 PM Member since: Mar 19, 2002
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  • Reply to

    question for the eca board

    by jones61111 Sep 14, 2014 6:58 PM
    robertat40 robertat40 Sep 18, 2014 3:56 PM Flag

    jones I have been trading options for many many years and betting on a stock to hit a certain price on a certain date is usually a losing proposition. Options are best used to create leverage, and to earn income while you wait for the underling to reach your price target.

    If you think we have bottomed out here. I would personally want to own the 2017 $13.00 calls (priced around $10.00 right now, which is just a $0.75 premium ) and sell a higher strike price against your leap calls each month to earn income until 2017. If you average $0.40 per call per month, you would earn $10.80 over the 27 months, and your effective cost of the shares would be $12.20 per share when you exercise your calls on expiration day Jan 2017.

    What's the risks? The price goes lower for any of the possible reasons jtbc mentions, and you won't be able to sell monthly calls against your leaps without the risk of a significant loss, but if you believe in the long term outlook. You'll be glad to hold onto your calls to ride out the storms waiting for the price to increase again to where selling calls makes sense again.

    The advantage is you get to control a share at 44% of today's cost leaving funds in your account to invest in other trades, or to earn income with low low volatility dividend paying vehicles.

    Ultimately, if you're a buy and hold investor. Your worse case scenario is you own the shares at $23.00 instead of $22.25. best case scenario you will greatly reduce the cost of the shares by selling calls, and using the unspent cash to earn income while you wait for ECA to get into the high $30's or $40's.

    Personally I am hoping for further sell-off in the sector, and a significant correction in the market to load up.

    Good luck!

    Sentiment: Buy

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