Closing two trades at the same time - stock and option?

[FSU]

To add a few things,

Follow @tommcginnis's advice to exit the position. Start at a price where you are selling the put and stock with about a .10 premium of the put over the price of the stock. For example if the stock is 12, you would put and order in to sell the stock at 12 and the put at 18.10, or a total of 30.10. Walk the price down a penny at a time until you are filled. Do not sell the put and stock for below parity of the put, or 30 total. If you haven't been filled before this, simply exercise your put and you will be out of the position at 30.

The price of the Jan 19 30 call is about .06. This is the effective value of your position over parity. So the fair value of selling your position out is about 30.06.

If you keep the position on you are synthetically holding this Jan 19 30 call (which is currently trading .06). You mentioned you were worried that you put will lose value, but it will not be worth less than parity, which is about what it is worth now. So if it losses value, you will gain value on your long stock.

The only real reason to get out of this is if you want to free up margin to make other trades. You can always get out at that 30 price buy exercising your put, so you don't have to worry about losing any more if other things change such as the dividend or current interest rates.

 

[danjuma]

@FSU Many thanks for the advice. Much appreciated

 

[tommcginnis]

The only real reason to get out of this is if you want to free up margin to make other trades. You can always get out at that 30 price buy exercising your put, so you don't have to worry about losing any more if other things change such as the dividend or current interest rates.

You know, since the delta on that put is (I'm guessing) 1.0, you are not going to lose any more, should GE plummet to 39¢. With that in mind, why not make a game out of it, and see how much of the current ~$270 loss you can recover, and sell a call on GE?? I think its IV was in a fair range (for me, meaning "25%-50%"??) -- I mean, a single $1 call could cut your loss by a third. "Why not?"

(And the "Why not?" to be sure, is FSU's point about a desire for margin: that's a solid point. Either way, you've got some choices.)

!!

 

[ironchef]

If I were you, I would close out my GE put and keep GE.

 

[tommcginnis]

If I were you, I would close out my GE put and keep GE.

I *think* you and FSU mean, "close out [the] GE [$30] put, buy a new GE $16 put TO KEEP the downside protection aspect, and keep GE because, hey, an old-line brand with plenty of tech behind it, in the process of reformation, is a recipe for price improvement," right??

(I'd still seek to sell three $1 calls...)

 

[JackRab]

Seems to me that that 30 put is to be exercised... even if you take into account the small dividends...

Normally you don't want to exercise puts before dividend, but the interest component is IMO outweighing the total dividend value + the call value. What's the market, bid ask price at what level of the stock when it's open?

Interest in this is about 0.52... total dividend until expiry is 0.48 (projected). So I'd say right after the next dividend in February this thing has to be exercised if all things stay equal.

All up... there's not a lot in there... it will move with a delta of 1 anyway for a while, unless GE jumps up to 20 ish it will start making a bit of money back.
It's just one lot... see when they pick it up by your ask price down and sell 100 stocks. If it seems you need to sell it under parity (below intrinsic) then if you don't want it anymore just exercise it. Or wait until after the next dividend...

But what are we talking about really... 1 lot with 100 stocks... at max you might lose 15 bucks in the selling.

 

[rakhi]

Squaring off the trade means that you have to do the buy and sell or sell and buy transaction on the same day before the market close.Intraday Trading is also referred to as Day trading by many traders.

 

[beerntrading]

I see your point. However, if GE keeps falling, and as the PUT nears expiration, will the PUT not start losing value at some point?

I mean you're going to actually pay to close the position. To close, you'll end up selling the put below parity because of the spread and commission. The worst case is you hold to expiry and exercise for no additional unrealized loss. Best case is GE doubles up (or more) and you make money. It's a long shot for sure, but unless you need the $3k margin, closing this now is basically giving away a zero-risk position.