I'm positioned long in Ford $F, and like Jordan Belfort... I'm not leaving!
Look at the daily chart over the past three weeks and you might be wondering, why?
But let's back up the truck and explain.
Back on May 26th, I entered a bullish Risk Reversal trade. This trade consists of selling naked short puts to pay for the cost of buying long calls. I bought the September 17 calls and I short sold the September 14 puts. Net net, the proceeds from the put sale precisely offset the cost of the long calls. So my net cash outlay was zero.
Two days later when the stock spiked in my favor, I sold half of my calls for $1.44 per contract, and used that to cover all of my short puts for 64 cents per contract. That transaction cleared out all the risk in the trade, leaving me net long half of my original long calls position, with a little bit of credit left over.
This means I own the remaining Sept 17 calls for a credit! I've been paid to hold the risk! $F can go to zero and my calls can expire worthless and I'm still a small winner in this campaign. Nice position to be in.
And this is why I can sit through this pullback in the stock. I've already won. And my long calls have three months to recover to possibly add to my winnings.
I stuck to my plan (which was shared with All Star Options subscribers when I put the trade on) and now I'm in a position to potentially be handsomely rewarded for doing so, with zero risk to my original invested capital. This is why I like Risk Reversals.
