Covered call/naked put with C

I want to thank MJ with The Fastlane to Millions for bringing this up in one of his forum posts. I have been considering a trade with Citi for a couple of weeks now, but his post brought it back to the forefront.

Just to be clear, I have not yet executed this trade for my investment partnership unlike the others that have been mentioned. But it is worth discussing and I would certainly appreciate any feedback.

Here goes; buy 10,000 shares of C at about $3.50/share. Sell 100 September $4 calls for about $.34 and sell 100 September $2.50 puts for about $.17. This gives you a net premium of $.51 giving you a cost basis on C of $2.99.

This means as long as C trades between $2.50 - $4.00/share at September expiration, your options expire worthless and you keep 100% of the profit. If C trades below $2.50 at September expiration you must buy 10,000 shares of C at this price. But remember, you have already collected $.51/share in option premium, so in order to lose money, C must trade below $1.99/share.

If C is trading above $4/share at September expiration, you automatically sell your shares for $4 netting an additional $.50/share in profit giving you a total profit of $1.01/share on a $3.50/share investment for a 6 month holding period. That is about 60% annualized return. Not bad.

Happy trading.