{ "media_type": "text", "post_content": "Considering selling a 6/18/2021 $60 put for SPG and using the premium to buy a same date $65 call. Thinking the price will be at least more than $75(strike plus premium paid for the call) in next year. Thoughts on the risk/reward?", "post_id": "5f710f37562b6e001a64c2d7", "reply_count": 16, "vote_count": 1, "bowl_id": "5acc42208c6b52001375e11e", "bowl_name": "Option Traders & Investing" }

Considering selling a 6/18/2021 $60 put for SPG and using the premium to buy a same date $65 call. Thinking the price will be at least more than $75(strike plus premium paid for the call) in next year. Thoughts on the risk/reward?

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I’ve been trading around SPG for a while and have been selling puts for income and/or lower my cost basis. I also have some of the stock outright. Two comments, would you be alright owning the stock of the put finished ITM? Why not just buy the stock and collect the 11% dividend? Write covered calls to boost the return a bit more. The cash flows seem pretty solid. Anyway, buying a LEAP on a hi dividend stock may not be the best approach.

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Thanks for your comment! I think at the moment the dividend is at something around 7 percent right? So that kinda justifies the selling put premium part. Writing covered call is a little bit hard to manage under the current situation(always up and down a lot)

I don’t understand the logic behind a LEAP on a high dividend stock. But selling puts make sense.

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Gotcha. I anticipate a huge upside for SPG so buying such low strike price call might be a good leveraged play?

This is a good idea if you are long term bullish about it and depending on your account size. If you have a smaller account, you can sell a put spread to better manage the buying power

I had do a call

I have a couple SPG call

I don’t get it. You’re basically making the same bet twice and any premium you get on the put will be locked up as collateral (plus some) against the put you’re writing. If the stock goes to $50, you lose on both legs of the trade. So you won’t be able to use the premium for anything.

Fine, if you couch it that way - that you were planning to buy the stock anyway - then I can see how one could view the call as a “free” add on, similar to how selling covered calls could be viewed that way. That’s a pretty significant assumption though that I don’t see mentioned anywhere. I’d still argue that it’s not free because of the opportunity cost of “not” buying the stock, but I digress. I don’t think it’s fair to think of anything as “free” in this situation.

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