BBIG Triple Play Hedge

Triple Play Hedge (TPH), it’s been a while since you heard that term. Well, a TPH is a strategy I came up with a few years ago. This strategy is not for Grasshoppers. It’s good for experienced traders who have a larger account. If you’re not familiar with the strategy you can read about it at Triple Play Hedge.

When you’re an options seller like I am, you rely on Time Decay to make you money. Sell Calls is getting into a Short position. As time goes by the premium of the option will go down. With Short positions, if the premium goes down you make money. You should completely understand this concept before you trade options.

Selling Covered Calls is a hedge move. You own a stock and you sell a Call option against that stock. If the stock goes down you lose value with the stock but the premium you received for the Call also goes down. Since that Call is a Short position, as it goes down you increase value. So, the Covered Call is a hedge against the stock going down. Very important to understand!

With a TPH I buy one stock and sell three Calls against that position. There is one Covered Call and two Naked Calls. With a normal Covered Call, when the stock goes down you have the one Call to make up for some of the loss. With a TPH when the stock goes down you have three Call increasing in value which can actually have you making money when your stock goes down.

I bought 1000 shares of Vinco Ventures (BBIG) on 9/13/21 at $10. I’ve been selling Calls against these shares since I bought the stock. And bringing in real nice premiums. However, the stock is below my buy-in price. I have a 10 contract Covered Call on the stock that will expire on 10/22/21. Today I decided to change that position to a TPH. In addition to the Covered Call I sold two more Calls. One expiring on 10/29 and the other on 11/5. If you look below I brought in a total of $1350. This  TPH will have to be managed because two of the calls have a Strike Price of $9 and the 3rd is $10. If the stock goes up and approaches my $9 Strike I’ll have to buy more shares to Cover the next Call if I get assigned on the earlier Call.

 

9/13/21 – Buy 1000 Shares BBIG @ $10.00

10/5/21 – Sell to Open 10 BBIG 10/22/21 $9.00 C @ 40¢ (+$400)

10/14/21 – Sell to Open 10 BBIG 10/29/21 $9.00 C @ 45¢ (+$450)

10/14/21 – Sell to Open 10 BBIG 11/5/21 $10.00 C @ 50¢ (+$500)

 

With the 10/22 Call I received a premium of 4%, the 10/29 Call 4.5% and the 11/5 Call 5%. I’ve been watching this stock for a while. If this TPH works the way I feel it will, it will be a good trade.

This TPH does have two Naked Calls involved so it gets a Risk Factor 4.

Read the Triple Play Hedge page and send me any question you might have. If you’re not at the level to do Triple Play Hedge trades, keep an eye on this position and see how it plays out. If I have to make some adjustment trades you can learn how I manage this to make sure it’s a winner.

 

Successful trading,

Steve

The Options Coach