Option Investor

Option Writer Portfolio - July

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Mosaic Company (Symbol: MOS) has come down quite a bit from its highs last week. Since we have the July 165 Call and there is support at $130 we should start looking at hedging the short calls. I want to sell the July 130 Puts for about $3.00 per contract.

The initial margin on the position is right at our average $1500 per position. The initial return is over twice as high as our minimum goal of 10%. Therefore the position possesses more risk than our normal position. However, the short call is currently priced at $3.10 and along with the addition of the short 130 put the DELTA will be nearly neutral. This is a continuation of June's risk management technique where we chose to roll up and out a month instead of taking the bullet last month.

The Fibonacci levels drawn from the May lows to the April highs show some really interesting phenomenon. The 162.8% extension came into play as the high. Also interesting is that the 61.80% level corridinates with the 50 day exponential and simple moving averages at $132 - $133 range. Unless otherwise noted, the 50 retracement is at $128.75 and will provide the technical risk management level for the short put.

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