TRADE IDEA: XLE SEPT 15TH 57/JULY 21ST 67 PMCC** -- Poor Man's Covered Call.
One of the few sectors that hasn't benefited from the post- November election run-up is XLE, so I'm looking to get into a bullish play here where price of the underlying is comparatively low.
Here, I'm basically looking to emulate a full-on covered call using a deep in the money call in September to stand in for stock, 100 shares of which would be somewhat pricey here, comparatively speaking. A covered call with the same short call would cost 64.56 to put on; the Poor Man's shown here is far less than that. Additionally, if you're looking to acquire XLE shares at some point, the setup gives you the flexibility to reduce some cost basis up front before acquiring the shares, after which you can exercise the long call instead of being stuck with shares with a cost basis of 64.56/share here, as you would be with a covered call here.
Unfortunately, as a form of diagonal, there aren't many metrics to look at, but this is what we do know about the setup:
Max Loss/Buying Power Effect: 7.21
Delta: 61.59
Theta: .75
Generally, you work it like a covered call, rolling the short call out to reduce cost basis in the long aspect of the position. However, on break of the short call, your long call won't be subject to "call away" as it would be with stock; in that event, look to exit the trade profitably and redeploy or roll the short call up and out for a credit if you want to continue to reduce cost basis in the long through expiry.
Notes: The pricing of the setup will probably be different during the regular NY session. I'm working with off hours quotes here, and the bid/ask on the back month is particularly wide here, so overall pricing of the setup may be inaccurate.
