Conservative Options Strategy
- Thread starter yucca_mtn
- Start date
Quote Dagynt:
1) the price you paid is 100% irrelevant.
You must consider the price of your position today.
2) Why would you settle for 4.85 for a box spread that is worth about $5?
Why would you convert one position to another - and not only lose those few cents, but be forced to pay 4 commissions?
3) The answer is really - honest - to sell the put spread in the first place.
4) An alternative is to just close the call spread. Take your profit, remove the risk of early exercise, and don't hold all the way through expiration. Let somebody else earn the last few nickels of the trade.
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I agree with you absolutely. Getting into those put spreads was the most costly mistake I made this whole miserable year. Will NEVER happen again.
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Quote Dagnyt:
If you think about rolling as two separate decisions, you will find it easier to make a good decision.
1) Do you want to get out of your current position. If the answer is 'no', there is obviously no need to roll.
2) OK. You want to get out. So close it. That's the first step.
3) Do you like the potential new position, or are you rolling just for the sake of rolling. I believe it is wrong to roll just to roll. It's far better to take the loss and move on, rather than open a new position you do not want to own.
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Agree also, and I did answer yes to questions 1 & 3.
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As an update, my portfolio is slowly improving using the techniques I started in December. Iâm using a service now to give me technical analysis of the S&P plus other trading techniques, and it is making a positive difference in helping me manage my spreads. Iâm also beginning to put on DITM spreads again in a limited way, but mostly things are as I described in December.
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Crismontez: I do like the position you put on, but I agree with taowave about not using puts if the position goes bad. My (newfound) preference would be to use indicators from a 3 or 6 month chart to decide when to buy or sell the calls. If your position gains, I assume you are good and will get 20% return, but if the position loses you have the choice to buy back the leap call at a profit, then wait for the stock to rise again if you think it will.
1) the price you paid is 100% irrelevant.
You must consider the price of your position today.
2) Why would you settle for 4.85 for a box spread that is worth about $5?
Why would you convert one position to another - and not only lose those few cents, but be forced to pay 4 commissions?
3) The answer is really - honest - to sell the put spread in the first place.
4) An alternative is to just close the call spread. Take your profit, remove the risk of early exercise, and don't hold all the way through expiration. Let somebody else earn the last few nickels of the trade.
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I agree with you absolutely. Getting into those put spreads was the most costly mistake I made this whole miserable year. Will NEVER happen again.
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Quote Dagnyt:
If you think about rolling as two separate decisions, you will find it easier to make a good decision.
1) Do you want to get out of your current position. If the answer is 'no', there is obviously no need to roll.
2) OK. You want to get out. So close it. That's the first step.
3) Do you like the potential new position, or are you rolling just for the sake of rolling. I believe it is wrong to roll just to roll. It's far better to take the loss and move on, rather than open a new position you do not want to own.
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Agree also, and I did answer yes to questions 1 & 3.
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As an update, my portfolio is slowly improving using the techniques I started in December. Iâm using a service now to give me technical analysis of the S&P plus other trading techniques, and it is making a positive difference in helping me manage my spreads. Iâm also beginning to put on DITM spreads again in a limited way, but mostly things are as I described in December.
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Crismontez: I do like the position you put on, but I agree with taowave about not using puts if the position goes bad. My (newfound) preference would be to use indicators from a 3 or 6 month chart to decide when to buy or sell the calls. If your position gains, I assume you are good and will get 20% return, but if the position loses you have the choice to buy back the leap call at a profit, then wait for the stock to rise again if you think it will.
"You are making the same mistake Yucca does....If its starts toppling,its over....You have a losing position that you are adjusting way too late"
Not really because in this case I have no problem getting stuck with COP at $39.50, I like the compay. I wouldn't be buying puts to offset this position, just buying them to make $ while I hold this position.
Not really because in this case I have no problem getting stuck with COP at $39.50, I like the compay. I wouldn't be buying puts to offset this position, just buying them to make $ while I hold this position.
Chris,
I am glad you said that as I have said the very same thing over and over and every time the stock tanks to the level I thought I wanted to own it at,I do NOT want to own it!!
I have since traded spreads similar to Yucca,but as a pre-emptive measure I spend a portion of the money I take in on index puts.My major risk is correalation risk,but I can live with that...
I am glad you said that as I have said the very same thing over and over and every time the stock tanks to the level I thought I wanted to own it at,I do NOT want to own it!!
I have since traded spreads similar to Yucca,but as a pre-emptive measure I spend a portion of the money I take in on index puts.My major risk is correalation risk,but I can live with that...
"I am glad you said that as I have said the very same thing over and over and every time the stock tanks to the level I thought I wanted to own it at,I do NOT want to own it!!"
I don't think I was clear on what I said. I would not be a buyer of puts at my BE point of $39.50 unless something drastic happened, I'd probably add to my position there. I'll be looking to buy puts for short term profit if COP starts to pull back from my entry point of $50 as I think it would then drop back to $45.
Ideally, I would like COP to be less than $50 a year from now as I would like to keep the stock long term. But with IV and premiums as high as they are, I'm content with this buy /write trade. I certainly wouldn't be short either naked calls or puts trying to sell IV. I did that with TASR when it was a high flyer and learned quickly why the IV was high to begin with.
I don't think I was clear on what I said. I would not be a buyer of puts at my BE point of $39.50 unless something drastic happened, I'd probably add to my position there. I'll be looking to buy puts for short term profit if COP starts to pull back from my entry point of $50 as I think it would then drop back to $45.
Ideally, I would like COP to be less than $50 a year from now as I would like to keep the stock long term. But with IV and premiums as high as they are, I'm content with this buy /write trade. I certainly wouldn't be short either naked calls or puts trying to sell IV. I did that with TASR when it was a high flyer and learned quickly why the IV was high to begin with.
Chris,
maybe I am not understanding you,but it appears to me you are simply in the COP 1 year ATM buy write.As we know you are simply short the put...
Yet you say you wouldnt be naked short calls or puts trying to sell IV.As far as I can see,thats exactly what you did.What am I missing??
I think as long as you position sized with the intention of "doubling down" from the onset,its OK to add to your position down 20%.
maybe I am not understanding you,but it appears to me you are simply in the COP 1 year ATM buy write.As we know you are simply short the put...
Yet you say you wouldnt be naked short calls or puts trying to sell IV.As far as I can see,thats exactly what you did.What am I missing??
I think as long as you position sized with the intention of "doubling down" from the onset,its OK to add to your position down 20%.
"Yet you say you wouldnt be naked short calls or puts trying to sell IV.As far as I can see,thats exactly what you did.What am I missing??"
Good question. I don't know, maybe I'm missing something since I probably could have got more premium for the put than the call, which usually isn't the case. Maybe it was just a mindset that I thought COP was a good buy at $49.50, analyst had a 1 yr est target of $60 and the short call gave me protection past the recent low it had of $41. Whereas if I had shorted the put it would have been because I thought COP was going up above $50 over the next year, when I think it could just as easily be between $40-$50.
Good question. I don't know, maybe I'm missing something since I probably could have got more premium for the put than the call, which usually isn't the case. Maybe it was just a mindset that I thought COP was a good buy at $49.50, analyst had a 1 yr est target of $60 and the short call gave me protection past the recent low it had of $41. Whereas if I had shorted the put it would have been because I thought COP was going up above $50 over the next year, when I think it could just as easily be between $40-$50.
Chris,
You must understand that the covered call and the naked put are equivalent positions. You can speak of them as being different, but that changes nothing. The P/L profiles are exactly the same. The only thing that makes one better than the other is the price you get for your trade.
It true that there is more premium in the call than the put. The reason is: for the positions to be equivalent, you must collect extra cash when selling the call because it costs real money (interest) to own the stock through expiration. Thus, the sum of dividends (if any) plus interest costs plus call premium is supposed to equal put premium.
If you believe 49.50 is a good buy price, then writing the LEAPS 50 put is as good as buy-writing the same LEAPS 50 call.
P.S. I though we all learned that analysts were worse than worthless during the 1990s bubble.
Mark
"P.S. I though we all learned that analysts were worse than worthless during the 1990s bubble."
Yea that is true. But if the 1yr est. was $120 I might be more reluctant to limit myself to a 20% return.
Yea that is true. But if the 1yr est. was $120 I might be more reluctant to limit myself to a 20% return.
Chris,
Please do not take this the wrong way,but you should understand options a bit better.Learn synthetic positions and learn the basics of conversions and reversals.I am only trying to save you your hard earned money..
Mark is correct that a Buy Write is essentially the same as a naked short put.There are subtle differences which mark addressed.
I think you are on board that
Long stock + short call = short put
When you undesrtand conversions and reversals,you will see the impact of carrying costs and dividends and how it effects the pricing of puts vs calls.The good news is the market has become so efficient that we are literally talking about pennies,as opposed to dollars when puts first started trading..
With that said,we should walk thru step by step and cover all the essentials of the trade...If I remember correctly,there were a couple of points you brought up that made my hair stand up on end
Tao
Please do not take this the wrong way,but you should understand options a bit better.Learn synthetic positions and learn the basics of conversions and reversals.I am only trying to save you your hard earned money..
Mark is correct that a Buy Write is essentially the same as a naked short put.There are subtle differences which mark addressed.
I think you are on board that
Long stock + short call = short put
When you undesrtand conversions and reversals,you will see the impact of carrying costs and dividends and how it effects the pricing of puts vs calls.The good news is the market has become so efficient that we are literally talking about pennies,as opposed to dollars when puts first started trading..
With that said,we should walk thru step by step and cover all the essentials of the trade...If I remember correctly,there were a couple of points you brought up that made my hair stand up on end
Tao