Buying stock to cover a call

BlueWaterSailor said:
Just to follow up: AMD kept rallying today, so I spent the last few hours tracking the premium and watching the greeks, then closed the trade when it peaked for a $77 profit. Interestingly, even though I expected the premium to start rolling off below the sold strike (85), the roll-off point came well before I expected it - around 82.75 rather than the 83.50-84 range that the analyzer showed.

Overall, I'm pretty happy with what I got out of this experience: some refinements to my defensive strategy for short puts that go against me (don't roll out the put once you've sold a call, because you end up exposing yourself to more upside risk), and a reinforced sense of doing the right thing for buying a cheap call as insurance. I still wish someone with more experience would add a bit more perspective - perhaps suggestions for other defensive strategies and their pros and cons, or things I could have done better with this one - but hey, it's all good. :)

Thanks to everyone who offered useful suggestions and food for thought!
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Your max profit would've been if you closed both the call and put when the stock is at the strike, since that's where total position delta = 0 and that's where your straddle forms its peak
 
madowhat said:
Your max profit would've been if you closed both the call and put when the stock is at the strike, since that's where total position delta = 0 and that's where your straddle forms its peak
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That's only true at expiration. The volatility smile has some surprises for you before that point. :)
 
Overnight said:
That is kinda' a lie. I recall your story.
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Heh, thanks. I do tend to pick things up fairly quickly - but then, I've spent my entire life learning and teaching, refining critical thinking skills, and looking for challenges. I've only been trading - hell, doing anything with finance, after a lifetime of total blindness in this direction - for a little over a year, and I'm steadily producing a very solid return within my risk model and with minimal portfolio volatility. I'm cautiously proud of that while remaining aware of the huge gulf labelled "Things I Don't Know About Trading".

Trading is the most complex thing I've tried to learn in my life (and I teach Data Science professionally). It makes me feel like a total idiot on a regular basis, which I suppose is a good thing in some ways - keeps my ego in check :) - but I'm going to keep at it for the rest of my life. And that's less about the money than it is about the continuing challenges... to me, in many ways, it's like sailing: you can never beat the ocean, but you can learn to live with it, know its moods, and not only survive but thrive there (while always, always respecting its power.) It's endlessly fascinating, and there's always more to learn.

But you pick the shit up quick, and while your experience as a whole may be limited, yer a frickin' sponge. You could be a beginning-level teacher! Yeah, you could do that! Every time I speak with you I feel like I learn shit about options!
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You're more than welcome, my friend. Your questions help me discover more things about trading, and reinforce what I already know.
 
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