200 shares of SPY bought at 286 - any way to rescue or generate income?

[destriero]

I have been paying my bills in medical school trading option for a year now, so the only record keeping I do is keep tabs on how much income I generate per month and don't do any record keeping other than this. I suppose I received handsome premium but it was quickly absorbed by my monthly expenses.

I went to Pritzker med.

Ostensibly you've been shorting puts for a while. No way (for us) to know how much you've gained/lost. Your PNL is irrelevant to the trade going forward. No, you shouldn't short synthetic straddles with limited knowledge. Your practical risk would be reduced and you can choose to be long or short delta.

The issue as I see it is that you cannot continue to write puts as you were assigned. So either sell the SPY and continue to short puts, go to cash, or convert the current position into a vol-position. If you don't know how then you should cover the SPY.

 

[destriero]

The Aug10 282.50 calls are 1.55 last. Shares are at 281.46. You take the call premium (*2) and add the difference between the strike and the underlying to calc the premium on the short synthetic straddle.

So (1.55*2) + (282.50-281.46) = 4.14 in premium per straddle. You can simply look at the 282.50 call and put to derive the same-strike straddle premium.

Further, you can convert the synthetic straddle into a limited-risk butterfly by buying an OTM strangle.

Long 200 shares -> short four Aug10 282.50 calls at 1.55 = short two contracts of the Aug10 282.50 synthetic straddle from 4.14 -> buy the 277.50P/287.50C strangle at 1.15 = short two iron butterflies from 2.99 credit.

The 2.99 credit = $2.01 risk per butterfly. $402 total risk on a two lot. The strike price +/- the credit gives you the terminal break-even.

 

[Johnmaine]

I went to Pritzker med.

Good to meet another Chicago alum! I went to Chicago myself and loved it!! Got robbed once, which freaked my parents out. Nearly got raped by a stranger and my dad thought Chicago was no place for a girl. I was also going through some other problems, so I transferred to a local, very low-tier community college that surprisingly also offered BS degrees. Graduated without debt from the community college. Joined Northwestern's MBA program but dropped out after I got into a PA program. Then I got my PA degree from Yale (Physician Associate), worked as a family practice physician for two years - and now I am in the MD program.

 

[destriero]

Good to meet another Chicago alum! I went to Chicago myself and loved it!! Got robbed once, which freaked my parents out. Nearly got raped by a stranger and my dad thought Chicago was no place for a girl. I was also going through some other problems, so I transferred to a local, very low-tier community college that surprisingly also offered BS degrees. Graduated without debt from the community college. Joined Northwestern's MBA program but dropped out after I got into a PA program. Then I got my PA degree from Yale (Physician Associate), worked as a family practice physician for two years - and now I am in the MD program.

Wow, what a story. I was born and raised in Kenilworth and we still have a house on Asbury in Evanston which we're trying to sell this year. I did undergrad and CIS there as well.

You'll do fine. Just read any intro book on structuring and you'll pick it up quick.

 

[Johnmaine]

Wow, what a story. I was born and raised in Kenilworth and we still have a house on Asbury in Evanston which we're trying to sell this year. I did undergrad and CIS there as well.

I have never owned a home. I practiced medicine for two years at HUP (UPenn's hospital) and all the doctors I knew lived in Bryn Mawr or somewhere on the Mainline. Couldn't afford the million dollar homes there. It was great experience at the hospital but I don't think I'd like to live in Philadelphia again.

 

[destriero]

I have never owned a home. I practiced medicine for two years at HUP (UPenn's hospital) and all the doctors I knew lived in Bryn Mawr or somewhere on the Mainline. Couldn't afford the million dollar homes there. It was great experience at the hospital but I don't think I'd like to live in Philadelphia again.

I have a lot of friends in Philly. A good friend of mine as a local at CBOE and his dad was the baseball coach at Penn. Irish Catholic so a huge family. I've known him since grad school and we'd go to home games. Great school.

 

[Johnmaine]

The Aug10 282.50 calls are 1.55 last. Shares are at 281.46. You take the call premium (*2) and add the difference between the strike and the underlying to calc the premium on the short synthetic straddle.

So (1.55*2) + (282.50-281.46) = 4.14 in premium per straddle. You can simply look at the 282.50 call and put to derive the same-strike straddle premium.

Further, you can convert the synthetic straddle into a limited-risk butterfly by buying an OTM strangle.

Long 200 shares -> short four Aug10 282.50 calls at 1.55 = short two contracts of the Aug10 282.50 synthetic straddle from 4.14 -> buy the 277.50P/287.50C strangle at 1.15 = short two iron butterflies from 2.99 credit.

The 2.99 credit = $2.01 risk per butterfly. $402 total risk on a two lot. The strike price +/- the credit gives you the terminal break-even.

Thanks! There are many technical terms in your post that I don't understand. Because I haven't read up anything on options - no books, no articles - there's already way too much reading in medical school. But I paper traded for a full year first and then live traded options and paid my bills in medical school for a year. I will read your advice again and try to digest it. But here's my own tentative plan of what I could possibly do to extricate myself out of this mess:

- Buy the 284 Put tomorrow's date for about $2.50 and exercise it tomorrow
which will get rid of my stock
- Sell the Aug 275 Put for about $160
- Sell the Aug 285 Call for about $160

The Aug short positions will pay for the 284 put that will help me get rid of my stock. Net credit from these positions will be about $70*2 = $140. I will close out the short positions once the stock gets exercised or whenever a good opportunity presents itself.

Not sure if this strategy will work but that's what I thought of.

 

[destriero]

Thanks! There are many technical terms in your post that I don't understand. Because I haven't read up anything on options - no books, no articles - there's already way too much reading in medical school. But I paper traded for a full year first and then live traded options and paid my bills in medical school for a year. I will read your advice again and try to digest it. But here's my own tentative plan of what I could possibly do to extricate myself out of this mess:

- Buy the 284 Put tomorrow's date for about $2.50 and exercise it tomorrow
which will get rid of my stock
- Sell the Aug 275 Put for about $160
- Sell the Aug 285 Call for about $160

The Aug short positions will pay for the 284 put that will help me get rid of my stock. Net credit from these positions will be about $70*2 = $140. I will close out the short positions once the stock gets exercised or whenever a good opportunity presents itself.

Not sure if this strategy will work but that's what I thought of.

You can simply sell the shares outright. Nothing wrong with the strangle you're proposing.

 

[Johnmaine]

Nothing wrong with the strangle you're proposing.

Thanks - didn't know such things are called strangles.

 

[smallfil]

I have 200 shares of SPY that I had purchased when SPY was trading at 286. Is there any way to rescue or generate steady income?

The time to plan is before the trade. Since, you own it, why not just hold it? Longer term, SPY is still in a strong uptrend after moving sideways. More than likely, it will recover and go higher. Selling calls would generate some monies for you but, remember since, SPY is on an uptrend, you run the risk of losing your shares in exchange for the premium. Your choice. You cannot have your cake and eat it too! Pick and choose!