Well, there's two scenarios then. Because we bought it at $46.87 and sold the $45 call for $2.85, there's a .98 spread there in our favor ($45 strike + $2.85 = $47.85 - $46.87 cost). So, we can play it as a covered call and just let it expire and get called out for the $.98 profit. But that leaves us with a loss on the puts.
Let's say it moves to $50 with no signs of letting up. What I would probably do then is 'roll up' the call. That means covering for a loss on the short call - which would be probably around $2.40 or so assuming the call would be around $5.20, then re-short a $50 strike. That would offset the loss a bit.
Now, we're playing the odds of that not happening here. That's why you have to be on top of charting. HAL is not GOOG. So the likelyhood of that happening are slim. But since all these oil stocks are now the bubble stocks of our time, anything is possible. Would I would do at $50 is probably turn it into a bear call spread.
Cover the $45 for a loss and add that loss to our net investment. Re-short the $50s and then buy a couple of $55s for protection if the trend looks strong. Actually, if the chart looked right as it does now, I'd probably short the $47.50s and buy the $52.50s as a bear call spread using the net credit to cover the loss on the short $45s we had to cover.
But all these things are decisions you make when the time comes. The point is there's a way out of any scenario.
It's also the reason I picked HAL over many others because it's not a momo stock. I think it wants to make that $48 trade to complete that inverse H&S pattern. $48 also is the 1.38% fibo extension target. So, you have two resistance points right at $48. Once this oil momentum trade breaks, it should break hard and fast and all these stocks will fall back to earth. And funny thing is we actually make more money when they go down since we short the calls and are long the puts.
I'll keep the trades up to date and you'll all know what I do and when and why. These types of trades allow you to sleep at night because you're not on edge all the time. You're always covered in both directions.
