Diagonal Option Trade on XLF Featuring OptionVue TradeFinder

Yesterday, I began looking at the the Financial Select Sector SPDR, otherwise known by it's ticker XLF. This ETF made a bottom recently, and has found some support at $20 per share. With vols high, my thought was to sell some premium but I did not want to walk into a situation that I may very well regret.



Admittedly, this trade is not sexy. If I am right, and XLF consolidates, I should be able to safely sell premium each month out into January. If XLF drops below $20 per share, I will have a "free" Jan'09 $15 Put to limit my downside. This allows me the choice of taking assignment should the share price fall below $19 per share, then begin selling covered calls. Alternatively, I can simply roll the short put option each month even if it is in-the-money.

This trade won't make me rich, but I should be able to earn a fairly decent yield from it between now and year's end.

Christopher Smith
TheOptionClub.com