CRM multiple option ideas needed

marcoPolo21 · May 30, 2011

I've sold a 160 CRM Nov11 call, for about a $13.50 premium.

So my break even stock price is about $173.50
[The stock currently sits around $151+].
I liked it at first, but the more research I do, it makes me a little nervous.

What ways, can I protect the contract, without closing it out?
I don't know all the fancy names, but I'm going through a few option books right now, to get some.

thanks
marc

HowardCohodas · May 30, 2011

For myself, I never enter a trade without a plan for exiting. A plan for exiting profitably and a plan for controlling my losses if the trade goes against me. Option plays are particularly challenging for someone new to options. I'll leave it to others to recommend particular strategies as this is outside my options experience.

ForexForex · May 30, 2011

Buy a $175 call for $8.30 http://finance.yahoo.com/q?s=CRM111119C00175000

It's expensive insurance but your maximum loss is reduced to $1,000.00 from unlimited. Maximum profit is reduced to $500.00 from $1,350.00.

MTE · May 30, 2011

Quote from marcoPolo21:

I've sold a 160 CRM Nov11 call, for about a $13.50 premium.

So my break even stock price is about $173.50
[The stock currently sits around $151+].
I liked it at first, but the more research I do, it makes me a little nervous.

What ways, can I protect the contract, without closing it out?
I don't know all the fancy names, but I'm going through a few option books right now, to get some.

thanks
marc

If it's a naked short call I strongly suggest that you close it out right away and not make another option trade until you gain some knowledge. If you don't know what you are doing then you have no business selling a naked call, let alone one with 6 months to expiration.

If you insist on owning it then there are a number of things you can do. As pointed out above you can buy a higher strike call (buying a 165 call gives you a max reward of 2.05 and a max risk of 2.95). Given that you sold the 160 call @ 13.50, you can enter the short vertical spread at a better price than the current market for that spread (obviously assuming the stock opens flat on Tuesday).

However, at the end of the day, firstly you need to decide what you think the stock is gonna do and then create an appropriate strategy that would reflect that view.

stoic · May 30, 2011

Quote from ForexForex:

Buy a $175 call for $8.30 http://finance.yahoo.com/q?s=CRM111119C00175000

It's expensive insurance but your maximum loss is reduced to $1,000.00 from unlimited. Maximum profit is reduced to $500.00 from $1,350.00.

Agree.

Plus once you calculate the lower return vs. the lower requirement, the percent gain is not that much different.

tickmagnet · May 30, 2011

I think the best trading instrument is SPY weekly options, cheap and liquid. No need to mess any individual stocks .

ForexForex · May 30, 2011

Quote from tickmagnet:

I think the best trading instrument is SPY weekly options, cheap and liquid. No need to mess any individual stocks .

Post an example .... then we can compare the risk/reward ratio to the November CRM 160/175 credit spread.

spindr0 · May 31, 2011

Quote from MTE:

If it's a naked short call I strongly suggest that you close it out right away and not make another option trade until you gain some knowledge. If you don't know what you are doing then you have no business selling a naked call, let alone one with 6 months to expiration.

DITTO