Long Call and Short Put...Debit / Credit trades

I am still slowly weeding my positions and taking small gains where I can and holding the rest. When I first bought some of the options I did so based on suggested call / put spreads. These are positions that involved buying a call then selling a lower strike put to fund the trade. Seeing as I cannot sell naked puts, which these would be as the call does not in any way cover the put, I must decide if I want to buy the long call on it's own. This is not necessarily in my interest as sometimes the position will be closed based solely on the money generated but the sold put when the call does not gain. Not all of the trades are of this type, most are a combination of long calls and some larger debit spreads.

So, I decided to not place any call only trades when the combination produces a credit or a very small debit right off the bat. The downside is that the performance recorded for this service is somewhat based on these trades. buying a 90 cent call, selling an 85 cent put yields a 5 cent debit so if the call gains anything I would expect the put to drop in value.

For example the call goes to 95 and the put drops to 80. This drives the profit quickly and a 5 cent move in each produces a 200% gain should the position be closed. For me that would mean I sell the call for a 5 cent gain or 5.5% gain. Given my current rules about position sizing I would only buy one contract at 90 cents so the commission would cost more than the profit.

I had that happen today, although I made a few dollars the call rose only 35 cents. The call was purchased for 85 cents and sold for 1.20.

For me I made a gross profit of 41%, or net of about 17% yet the full position as suggested made at least 300% as it was based on a 15 cent net cost and turned 65 cents...433% actually.

The most interesting return numbers occur when the put sold is worth more than the call bought. The trade gives us money at the open then produces more profits as time progresses and the call appreciates while the put depreciates. How do you calculate the return when there is no money used to put up the trade in the first place?

While I would love to be able to make these trades the risk inherent in selling a naked put is more than a little daunting. I would want to be OK being put the stock and either holding the stock for a future gain or just turning it over to clear up the losing position.

So until I amass enough capital to fund short puts I will keep plugging away and selecting some of these trades for my long call only portfolio.

Jeff.