I purchased them at 286, so my targeted strike price is 286. As long as SPY is below 286, I keep the premium from writing the calls. However, suppose SPY opens on the day of expiration at 300, then my 200 shares will be called away at the end of the day, which is fine because I have already made money selling two calls. But I will lose money on two other calls, so I will have to buy stock at 300 and sell it at 286. I also won't be able to buy back the two calls I sold because now they're in the money, and hence more expensive to buy them back. Is my reasoning correct?
200 shares of SPY bought at 286 - any way to rescue or generate income?
- Thread starter Johnmaine
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I purchased them at 286, so my targeted strike price is 286. As long as SPY is below 286, I keep the premium from writing the calls. However, suppose SPY opens on the day of expiration at 300, then my 200 shares will be called away at the end of the day, which is fine because I have already made money selling two calls. But I will lose money on two other calls, so I will have to buy stock at 300 and sell it at 286. I also won't be able to buy back the two calls I sold because now they're in the money, and hence more expensive to buy them back. Is my reasoning correct?
re: straddles
the OP understands zero about options.
your advice is too vague and therefore useless for this individual.
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Well, obviously you understand options really well. So please tell me if my reasoning is correct -
Destriero said:
"Short four calls at a strike that you’re targeting".
I purchased the stock at 286, so my targeted strike price is 286. As long as SPY is below 286, I keep the premium from writing the calls. However, suppose SPY opens on the day of expiration at 300, then my 200 shares will be called away at the end of the day, which is fine because I have already made money selling two calls. But I will lose money on two other calls, so I will have to buy stock at 300 and sell it at 286. I also won't be able to buy back the two calls I sold because now they're in the money, and hence more expensive to buy them back. Is my reasoning correct?
Hmm long time (3-4 weeks) listener, first time caller re destriero: I think he/she was brief but brilliant.
Your target price is 286.
What happens at 285 - you get to keep the call premium.
What happens at 280 - you get to keep the call premium. You can rinse and repeat to keep lowering your losses.
What happens at 290 - you get to keep the call premium, your 200 long gets adjusted against 2 short calls ... as long as you have the 200 shares long, the price can go all the way to the moon (let us say 300 since you said it) and you will not lose more money because 200 long stock + 2 short calls will balance each other out.
Your max risk then is capped at 2 other short calls, which is similar (but not identical as the direction is opposite) to the position you currently have. You use a similar strategy (write 4 puts) to get these out of trouble. However, it is possible that SPY does not move as much and you can exit these much faster.
Your target price is 286.
What happens at 285 - you get to keep the call premium.
What happens at 280 - you get to keep the call premium. You can rinse and repeat to keep lowering your losses.
What happens at 290 - you get to keep the call premium, your 200 long gets adjusted against 2 short calls ... as long as you have the 200 shares long, the price can go all the way to the moon (let us say 300 since you said it) and you will not lose more money because 200 long stock + 2 short calls will balance each other out.
Your max risk then is capped at 2 other short calls, which is similar (but not identical as the direction is opposite) to the position you currently have. You use a similar strategy (write 4 puts) to get these out of trouble. However, it is possible that SPY does not move as much and you can exit these much faster.
Robert MorseSponsor
It's your money,
Bob
he is telling you to move on to eliminate the possibility that your losses balloon.
it is a lesson in life which is true in every area.
take it.
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It's your money,
Bob
he is telling you to move on to eliminate the possibility that your losses balloon.
it is a lesson in life which is true in every area.
take it.
Robert Morse gave you excellent advice:
"If your expectations have not changed, stay long. If you think you were wrong get out. This is true for every position unless you have reach your max loss you are willing to endure or you have reached your target."
DO NOT SHORT 4 calls at a targeted strike until you clearly understand options and can manage the position (it doesn't appear that you have achieved either of these yet).
If you decide to keep the shares:
1) You can do nothing and do Buy & Hope.
2) If you are willing to give up the upside and you want to whittle down the cost, sell covered calls.
3) If you have breakevenitis, consider a Repair Strategy:
http://www.theoptionsguide.com/stock-repair-strategy.aspx
4) If you want to lock the position into the equivalent of a vertical spread, collar it, preferably at no/low cost:
http://www.theoptionsguide.com/the-collar-strategy.aspx
And as per Ironchef, "Get a good option book and study it thoroughly."
"If your expectations have not changed, stay long. If you think you were wrong get out. This is true for every position unless you have reach your max loss you are willing to endure or you have reached your target."
DO NOT SHORT 4 calls at a targeted strike until you clearly understand options and can manage the position (it doesn't appear that you have achieved either of these yet).
If you decide to keep the shares:
1) You can do nothing and do Buy & Hope.
2) If you are willing to give up the upside and you want to whittle down the cost, sell covered calls.
3) If you have breakevenitis, consider a Repair Strategy:
http://www.theoptionsguide.com/stock-repair-strategy.aspx
4) If you want to lock the position into the equivalent of a vertical spread, collar it, preferably at no/low cost:
http://www.theoptionsguide.com/the-collar-strategy.aspx
And as per Ironchef, "Get a good option book and study it thoroughly."
It generates income right now! SPY pays a quarterly dividend.
Thank you for a considerate reply!!
I assume that you shorted the 286 puts, but you received the put premium. So what was your cost in acquiring those 200 shares? IOW, what strike did you short? What premium did you receive?
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.