it's only a paper trade, but could use some advice

N

Norman D Gutter

Hello Traders:

Help a newby out here, if you would, please. Prior to actually trading some options (well, I have a real life covered call going, which, though profitable, barely counts), I've been doing some paper trading. I have a naked put paper trade going in the QQQQ, as follows.

12/20/05 sold QQQQ 3 Jan 41 puts for 0.55

1/06/06 bought back QQQQ 3 Jan 41 puts for 0.10
1/06/06 sold QQQQ 3 Jan 42 puts for 0.30

1/11/06 bought back QQQQ 3 Jan 42 puts for 0.10
1/11/06 sold QQQQ 3 Jan 43.625 puts for 0.55

So, after commissions, I'm net +312.75 in the trade. Except the QQQQ closed today at 42.52, up 0.31, which gives me a potential loss on assignment of 1.11 per contract (not counting what the QQQQ does tomorrow). I could buy back the three contracts for 1.15, and sell 3 Feb 44 puts for 1.50. Those prices will likely adjust tomorrow, especially if today's rally continues. Or I could take assignment and wait for it to go up, or even write a covered call against it.

Any thoughts? I've learned my lesson for getting greedy with the second buy back. My profits would have been higher by letting the first buy back run.

Best Regards,
NDG
 
I was going to suggest selling 3 of the 43 Calls but it's too late. You're really in a box the last few days for the most part.
 
Either you're gonna be the proud owner of some 4Q's or you need to cover that last buy for a loss and put that nose back to the grindstone.

More importantly, what did you learn from this exercise and how could you hone it for better success?
 
Yeah, what an ass-pounding they took today. That's a great paper lesson.

I generally take my sold option positions off when they reach a certain point. Maybe you get 75% - 80% of the value out and then cut it and move on - no matter where the underlying is. The risk simply isn't worth that last few bucks given the time left.

I covered some short Jan 1280P's yesterday for a buck. A friend who also had some did the same and we were joking about keeping them and getting the extra funds since the futs were low 90s at the time with only a day left. I told him I didn't want to be buying them back for $10 on Friday...they settled for $15.25 today.
 
Thanks, everyone, for taking time to respond. I wound up just keeping the short puts, and so in my paper trade records I took the assignment at of 300 shares at 43.625. That puts me in margin in my $10,000 paper trading account. I'm taking a few days to decide what to do. I'll likely sell 3 calls against them, but I'm taking time to consider options. Life is a whirlwind for me right now, and I barely have time to think about this.

Quote from Algorithm:
...More importantly, what did you learn from this exercise and how could you hone it for better success?
More...
Hmmm, it will take me some time to assess this. But on a quick assessment, had I just stayed with the 41P I'd have made $165 less commission. That would have been 1.65% for the month, plus interest on the reserves in the account (so maybe around 2%, haven't figure the interest yet). So I guess I got greedy, and took a loss as a result.

Again, thanks,
NDG
 
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