I have had a stock setup for while that I wanted to put on SNDK (Sandisk Corp). As a member of my UP stalk list, I waited for a big up day on the stock to do the following trade:
Buy 1k shares of SNDK at 45
Sell 10 46 strike Dec calls at 1.49
Buy 10 44 strike Dec puts at 1.33
The option trade portion was put on for a net credit of .16c -- I got paid to protect those shares. Since I expected a pullback short term, I was ok with capping the upside at 46.
So why do this trade now? By having patience on Wed, I caught the stock on a big up day. This makes the upside calls elevated (good for selling), and the downside puts much cheaper (good for buying). As the stock pulls back, I'm ok with that because the puts go up in value (thus offsetting the unrealized loss in the underlying common). I do have the option to buy back those upside calls at any time during a pullback and keep the difference in premium (thus lowering my cost basis for those downside puts).
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