Hey,
I just started trading and did something really stupid, and now I am stuck with 400 shares of something I don't want. I don't want to take a loss outright, and was wondering what some of the pros would do in my situation?
This is a pretty long post, so if you don't want to read it all, I've bolded the questions I am hoping to get answered.
- - -
Here's the situation:
Cost Basis: $2.23 per share
Current Price: $1.23 per share
Strike prices for options are: $2.50, $5.00, and $7.50.
Expiration dates are: Dec, Jan, April, July
Low Liquidity in both the underlying and options market.
- - -
Possible Method of Unwinding:
I am considering unwinding 200 shares of my stock at a breakeven point/possible gain/slight loss at the risk of holding 100 shares of my stock hostage. This would be great as that would get rid of half of something I don't want.
Here are the current strikes and ask prices of the Dec Put.
K: 2.50; P: 1.40
K: 5.00; P: 3.90
K: 7.50; P: 6.40
As you can see, the time premium for all the Puts are the same, i.e. $0.13, since the underlying is trading at $1.23. If I were to buy one, which one should I buy?
With something as illiquid as this, would the time premium really decrease as expiration nears? In other words, should I buy it now or wait until it nears expiration?
My potential strategy is to buy two puts at a total time premium cost of $0.26. And then sell a July call at a strike price of $2.50, which has a bid price of $0.30.
This would give me a $0.04 net gain on the time premium.
I would end up holding 100 shares hostage to the July call, since I am trading with a cash account.
What do you think?
Thanks!
I just started trading and did something really stupid, and now I am stuck with 400 shares of something I don't want. I don't want to take a loss outright, and was wondering what some of the pros would do in my situation?
This is a pretty long post, so if you don't want to read it all, I've bolded the questions I am hoping to get answered.
- - -
Here's the situation:
Cost Basis: $2.23 per share
Current Price: $1.23 per share
Strike prices for options are: $2.50, $5.00, and $7.50.
Expiration dates are: Dec, Jan, April, July
Low Liquidity in both the underlying and options market.
- - -
Possible Method of Unwinding:
I am considering unwinding 200 shares of my stock at a breakeven point/possible gain/slight loss at the risk of holding 100 shares of my stock hostage. This would be great as that would get rid of half of something I don't want.
Here are the current strikes and ask prices of the Dec Put.
K: 2.50; P: 1.40
K: 5.00; P: 3.90
K: 7.50; P: 6.40
As you can see, the time premium for all the Puts are the same, i.e. $0.13, since the underlying is trading at $1.23. If I were to buy one, which one should I buy?
With something as illiquid as this, would the time premium really decrease as expiration nears? In other words, should I buy it now or wait until it nears expiration?
My potential strategy is to buy two puts at a total time premium cost of $0.26. And then sell a July call at a strike price of $2.50, which has a bid price of $0.30.
This would give me a $0.04 net gain on the time premium.
I would end up holding 100 shares hostage to the July call, since I am trading with a cash account.
What do you think?
Thanks!
