We never play LG Display (LPL) because they don't have long-term options but they are right at $10 so we have a chance to sell a lot of premium at a good strike - so let's do that for the Earnings Portfolio:
- Buy 50 LPL Jan $7.50 calls for $2.45 ($12,250)
- Sell 50 LPL Jan $10 calls for $1 ($5,000)
- Sell 25 LPL Jan $10 puts for $1.35 ($3,375)
That's net $3,875 on the $12,500 spread that's starting out pretty much 100% in the money so all LG has to do is hold $10 for 169 days and this trade makes $8,625 (222%). The risk is owning 2,500 shares at $10 + $1.55 (the $3,875 loss) but LG should be making about $1.4Bn this year against what is now a $7Bn market cap so stupidly cheap means we don't mind getting "stuck" with them for the long-haul.
Let's say it drops to $8 and we we have 2,500 at $11.55 so we sell 25 $7.50 puts for $1.25 and that knocks our net down to $6.25 on round 2 for an average of $8.90 and we could then sell 25 $10 calls to drop our basis to $8.65 with a call away at $10 for a 15.6% profit, despite the dip. Worst case then is owning 5,000 shares at ($7.50 + $8.65)/2 = $8.075 ($40,375) so the bottom line is, if we don't REALLY want to own 5,000 shares for $8.075 - why would we sell any $10 puts?
You can JUST buy the bull call spread for net $1.45 on the $2.50 spread and make a very respectable $1.05 (72.4%) if all goes well - that doesn't suck...
I like any stock where a simple call sale pays 10% in 6 months as it means as long as they don't go bankrupt in 5 years - I should get my money back!
