BGZ Buy the Stock and Sell The Call

Today while the S&P was near 905 I purchased 200 shares of BGZ. BGZ is an inverse ETF that uses 250% leverage to get a 3X opposite move on a large basket of large cap stocks. So for every 1% drop in the basket of large cap stocks, this ETF moves up 3% or so. I purchased 200 at $61 per share, and waited an hour or so before I wrote 2 call contracts for the December 80 strike. I sold both contracts for $391.50 AFTER fees, that means my cost basis for these shares is now $59.05, and I am giving the rights to someone to purchase the shares off of me ( in 10 days) for $80. So if I do get called out I would net over $4000, but if Idon't I will just write them out again for the January expiration and get another whopper of a premium. The reason I am doing this is because by writing the call so far out of the money I am guaranteeing myself a much higher price than I paid for the stock (if I get called out), as well as gives me a little income off my shares and lowers my cost basis. The other good part is- well if this stocks gets trounced that just means 85% of my portfolio is doing great! I will continue to play with these very volatile stocks as long as the VIX (Volatility Index) remains above 30- which I see for the next 6-8 months. This strategy has worked for me well the last 3 months with both BGZ and SDS. If you think that these are too volatile look around thre are many inverse funds out there to be found.



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Why not do Both?

Recently I have been doing some back testing and I chose Google as my guinea pig... Expensive guinea pig right? Well not really considering I made over 60% in about 2 weeks. A little over 2 weeks ago, November 24 to be exact, I purchased both calls and puts on Google. Knowing how volatile the market currently is, I assumed we'd see Google trade in a huge range for the next 3-4 weeks (at the time the options had 25 days left until it expired). Before you read on, notice that I said the word assumed, a dangerous word in the world of investing, and I could have been left with $0 if my assumption didn't pay off- so don't think I am saying this strategy works 100% of the time!

On Nov. 25 when Google was around 255 share, I purchased the December $240 put, and the December $270 call (notice $15 up and $15 down- I call this a "custom straddle" also known as a strangle - learn more from my advanced trading options E-Book ). I purchased both contracts for $2910, and as of today Google traded up to $318 a share. I sold both my 270 call for $4640 and my 240 put for $125 so together I banked $4765, $1855 of which was profit, that's 63.7% profit to be exact.

So in this case my assumption paid off. Would I have done this if the market was less volatile? ABSOLUTELY NOT! This time it paid off nicely and I've already decided to try this strategy again for the January expiration, once the holidays, and December expiration are over. I will most likely do this as long as the VIX (Volatility Index) is over 50.



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Visa Options Paid Off- Update to November 28 Post

Today Visa traded up as high as $57.67 per share, I sold all but 5 of my contracts (December 55 strike calls) for $330 per contract. Yes I sold them for more than quadruple my cost. Just to reiterate a point stated in several of my previous posts, if you can risk your money you should look at trading options versus trading common shares.



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