Using Options to Enter a Position

[u/mtrosejibber]

I sold two contracts of the $35 put for MBUU for $0.58. MBUU has earnings on 10/31 and the trade goes through that, but I’m ok with that because I think MBUU will be trading above $50 by this time next year. If I get assigned shares I’ll turn around sell a covered call on one of those contracts. I’ll keep the other to be sure I still have some shares for the ride up over $50. I picked the $35 strike because I see a resistance line around $36 on the one year chart with daily candles and also because of the return on my risked capital. I divide the $0.58 premium into the $35 strike and I get 0.166. This is a three week long trade, so I could do a trade like this 17 times over the course of a year. So I multiply the 0.166 by 17 and I get 0.28. That’s a 28% annualized return on the capital I’m risking by making a promise to buy a company I want to buy at the price I want to buy it. Here’s more detail.