RelationDigest: [New post] Infinite Banking Concept (Nassau Financial Group) (Update 5)

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Infinite Banking Concept (Nassau Financial Group) (Update 5)

by howevercareful

Shares of Lumen Technologies, Inc. (LUMN) closed today at $12.68, up $.54 from January 28's close of $12.14. After the market closes tomorrow, LUMN will announce quarterly earnings. If the report is very favorable, shares could skyrocket on Thursday when the market opens. Or. the report could be disastrous and shares could plummet. This predictable volatility often btrings out gamblers who buy options. This enables them to control many shares at a fraction of what it costs to buy shares. With the additional possiblity for large price movements, option sellers want more to take on the risk. Option buyers are willing to pay more for a chance to hit a grand slam.

The question now becomes whether it is better to buy relatively expensive items or sell relatively expensive items. The plan for tomorrow is to take advantage of higher Implied Volatility by selling a $12.50 Straddle that expires on February 11. The $12.50 strike price was chosen because more Time Value exists as the stock price approaches the strike price. By Selling To Open 10 February 11 $12.50 puts, currently $.37 x $.44, and Selling To Open 10 February 11 $12.50 calls, currently $.54 x $.61, one would receive at least $.91. By dipping into the by a third, one might get an extra $.04. If only $.91 were collected, the Straddle would be profitable if at the end of trading on Friday, $$11.59 <LUMN < $13.41. The Bid X Ask of the Straddle is $.91 x $1.05. Buyers of the Straddle who pay $1.05 won't see any profit until LUMN < $11.45 or $13.55 < LUMN. One can see that Straddle sellers want less price movement and Straddle buyers want more price movement.

As an option seller, the extreme must be accounted for. Extreme price movement means more loss. Collecting $.91 to Sell To Open the Straddle comes with the obligation to Buy To Open LUMN at $12.50 and the obligation to Sell To Open LUMN at $12.50. It would be disastrous if LUMN were to increase, or decrease by $5.00, $10.00, or more. To reduce risk, selling an Iron Butterfly will be done instead of just selling the Straddle by also Buying To Open 10 February 11 $10.00 puts, currently $.00 x $.06, and Buying To Open 10 February 11 $15.00 calls, currently $.00 x $.05. Buying To Open this Strangle in addition to Selling To Open the straddle form an Iron Butterfly. By turning the Straddle into an Iron Butterfly, paying $.11 would bring the right to Buy To Close shares of LUMN at $15.00, and the right to Sell To Close shares of LUMN at $10.00. $.11 is cheap insurance to protect against any loss of more than $2.50. Because the maximum risk is $2.50 and 10 contracts represent 1,000 shares, $2,500.00 will be placed on hold.

If at the end of Friday $10.00 < LUMN < $15.00, three of the four legs will expire worthless. One of the $12.50 legs will expire In The Money. The plan will be Buy To Close that leg for Intrinsic Value plus a little Time Value, and simultaneously Sell To Open the same leg that expires on March 11 for Intrinsic Value plus a little more Time Value. Before this can happen, a March 11 Strangle will first be established by Buying To Open 10 March 11 $10.00 puts, currently $.00 x $.15, and Buying To Open 10 March 11 $15.00 calls, currently $.01 x $.13. Then the other March 11 $12.50 leg will be Sold To Open and the March 11 Iron Butterfly will be complete. $2,500.00 will be placed on hold because there is $2.50 between the strike prices and 10 contracts represent 1,000 shares.

Current Positions:

10 February 18 $10.00 puts/$12.50 puts/$12.50 calls/$15.00 calls Iron Butterfly, currently $.98 x $1.18. ($2,500.00 placed on hold)

500 LUMN shares/5 January 20 $15.00 calls Covered Call, currently $11.82 x $11.90.

100 LUMN shares/1 January 20 $12.00 call Covered Call, currently $10.74 x $10.95.

100 LUMN shares/1 January 20 $10.00 call Covered Call, currently $9.57 x $9.79.

Account Value: $20,129.44.

$440.00 loan repayment transferred out on February 1.