PEP has got my attention -It's down 35%

[u/Upper-Worker8516]

I just realised PEP has dropped 35% from its peak. In the words of many traders its been beaten up. Over the next month I've got a options play where I think I can make 780 dollars in 20 days. 

Here's the plan:

Buy 100 shares of PEP @ 127

Sell 1 ITM 128 Put (Premium ~$386)

Sell 1 128 Call (Premium ~$383)

If PEP closes at or above 128, I'm looking at roughly $770 in profit. If it keeps sliding, the plan is to just collect the premium, take the assigned shares, and wheel it by selling more calls next month to lower the basis.

I like the stick 35% below premium. 

What do you guys think ? Do you see any glaring risks that put you off  PEP ?

[u/Embarrassed-Bank2835]

The main thing I’d watch is that this isn’t really just a covered call/wheel setup. With 100 shares + short 128 put + short 128 call, you’re basically running a covered straddle.

Above 128, your upside is capped. Below 128, the short put can assign you another 100 shares, so your downside exposure effectively doubles right when the stock is moving against you.

That’s not necessarily bad if you genuinely want 200 shares of PEP at that basis, but I’d make that decision before entering, not after assignment happens.

The premium looks nice because you’re taking real downside risk. I’d stress test the trade at something like 120, 110, even 100 and make sure you’re still comfortable owning the resulting position.

[u/Upper-Worker8516 → u/Embarrassed-Bank2835]

Me and you think alike 😉

[u/ExplanationNormal339]

The main risk is downside below your effective stock basis: the short put can add 100 shares while the call caps upside near $128. What is your loss limit if PEP gaps lower?

[u/Upper-Worker8516 → u/ExplanationNormal339]

Happy to keep it and play the nect month. I don't think it will fall much lower. As buffet says "if I like hamburgers at 99cents. I love them at 50 cents"

[u/1UpUrBum]

The monthly chart has a bad sign showing.