I try to look at strategies from different angles and sometimes I think I get mixed up in my own mathematics, so I've either come up with a good play, or it's totally (or partially) screwed up. Maybe somebody can tell me where I'm wrong.
I started when I was reviewing a collar kind of strategy which involved a short call and a long put, each one strike out of the money (stock @30, CC@35 and long put @25).
I then began experimenting with a short call and long put one strike in the money and here's what I'm coming up with using MED as an example.
Stock closed today @30.01. Then STO June 25 call @5.40 and BTO Jun 30 put @ 2.20, net credit per contract $320.
If stock drops to 20 at expiration, then I lose 1000 on stock, but gain 1000 with put, net gain $320.
At 25,the stock is assigned, and I've lost $500 on it, but I gain 500 with the put (either selling it or exercising it and reselling the stock), net gain $320.
From 30 and up both options are gone, and I have the premium.
So, it seems that on a stock purchased at 30, with this strategy I make $320 almost whatever happens, a 10+% return in 3 weeks.
I looked at MED and can see nothing that indicates any major changes.
Now will someone wake me if I'm dreaming?
Thanks.
Lou
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