We are making a few changes to our OXY position. We closed the current covered call but we did it through buying a lower strike call. The reason this is better is that although unlikely, since we had to pay 0.02 to close our 55 strike call. We would rather pay 0.02 to buy the 52.50 call to “cover” it and leave us with the potential to make some money on a big spike higher (very unlikely to happen). Next, we added both a 1×2 call spread (June) and 1×2 put spread (May) to OXY. Berkshire owns a lot of OXY and it is their annual meeting this weekend. We are using the 1×2 put spread to potentially buy more of OXY stock now that it has reached our levels. Ultimately Berkshire may end buying up the entire OXY company but that probably wouldn’t be for a few years.
Buy to open: OXY May 19th (monthly) 52.50 strike call
Debit: 0.02
This essentially closes (buys back) the current covered call in May at the 55 strike but gives us a sliver of hope for more profit.
This 1×2 call spread is not “naked” because we own 100 shares of the stock
Buy to open: OXY June 20th (monthly) 42.50 strike call (ratio of 1)
Sell to open: OXY June 20th (monthly) 47.50 strike call (ratio of 2)
Debit: 0.70
Max risk = 0.70 or $70.00 per spread
Max reward = 4.30 or $430.00 per spread
This 1×2 put spread is ONLY if you are willing to own 100 shares of the stock
Buy to open: OXY May 16th (monthly) 39.00 strike put (ratio of 1)
Sell to open: OXY May 16th (monthly) 36.00 strike put (ratio of 2)
Debit: 0.31
Likely risk = 0.31 or $31.00 per spread
Max reward = 2.69 or $269.00 per spread
Max risk = Being “put” 100 shares of stock at a cost basis of 33.31