TRADE IDEA (IRA): HYG SEPT 20TH 82 SHORT PUTMetrics:
Max Profit: $173/contract
Buying Power Effect (Cash Secured): $8026
Break Even: 80.26/share
Delta: 31.71
Theta: .67
Notes/Comments: Up to this point, I haven't posted many of my IRA trade ideas, primarily because they are way longer-dated setups than people are generally interested in, and I've also been an infrequent buyer of the underlyings that make up my portfolio -- a fairly mundane mix primarily made up of SPY, EFA, TLT, and IYR covered calls where setup management consists of looking at the short calls from time to time and rolling them out for duration, credit, and further cost basis reduction. It isn't very exciting, and I may not have to do much for weeks, if not months, in certain cases.
Naturally, this trade is not going to be attractive to everyone; you are, after all, going to be tying up $8k of buying power for a very long time with a return on capital of about 2.16% if you do nothing and the short put expires worthless. For me personally, I have idle cash sitting in the IRA earning virtually nothing, and I don't anticipate adding to my core positions in short order given my cost basis, where these underlyings are in the grand arc of time, and my proximity to retirement. Moreover, one of my basic IRA rules is not to undertake single name risk, so my basic options are (a) do nothing; or (b) stick something out there and get paid to wait for the price at which I want to acquire.
Here, I'm interested in acquiring HYG with its attractive 5.46% yield, but at a price discounted substantially over where it's currently trading; otherwise, I simply don't want the shares. I can either wait until price gets there or sell puts that will result in a cost basis at or below what I'd like to get in at if I'm assigned. Here, I'm opting for the latter ... .
Post fill, I'll periodically look to roll for duration and credit to reduce cost basis further.
