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option noob with a little niggle....
- Thread starter TGpop
- Start date
Quote from thirst:
if you're long the puts thru earnings, drop in IV post earnings would also eat into the premium quite a bit... just thought i'd mention that.
I checked that before selecting the month. What I did, was avoid the front month and bought a few months ahead. I paid more in absolute dollars, but didn't over pay for the option.
That way, if the underlying stayed flat, my only risks were slippage and commissions. Of course to the upside I lose more money...
Quote from dagnyt:
When they <b>already</b> own stock, they cannot hedge by buying calls.
They must sell calls or buy puts to hedge.
Mark
And many will wait until the underlying hits their price target and then buy the put (at least 90 days our from expiration) at the strike nearest the price target. Heck, you can use options to get into a stock you like at the price you like as well. Suppose XYZ is trading at 50, but I like it at 45. So, I can sell the front-month 45 put. If it expires worthless, I can repeat the procedure and continue to pocket premiums. If it expires ITM, I still keep the premiums and I get the stock at the price I want. This requires patience. Then, once the stock hits my initial price target, I can buy a put at the strike closest to the price target. If this put expires ITM (assuming you allow it to), you lock in your stock profits minus the cost fo the put. If the stock keeps going up, you can always sell the protective put and buy another one as the stock reaches your next price target. Sure beats trailing stops---one dip and the trailing stop is hit, while the put doesn't do anything until expiration.
Quote from jwcapital:
And many will wait until the underlying hits their price target and then buy the put (at least 90 days our from expiration) at the strike nearest the price target. Heck, you can use options to get into a stock you like at the price you like as well. Suppose XYZ is trading at 50, but I like it at 45. So, I can sell the front-month 45 put. If it expires worthless, I can repeat the procedure and continue to pocket premiums. If it expires ITM, I still keep the premiums and I get the stock at the price I want. This requires patience. Then, once the stock hits my initial price target, I can buy a put at the strike closest to the price target. If this put expires ITM (assuming you allow it to), you lock in your stock profits minus the cost fo the put. If the stock keeps going up, you can always sell the protective put and buy another one as the stock reaches your next price target. Sure beats trailing stops---one dip and the trailing stop is hit, while the put doesn't do anything until expiration.
The OP had a legitimate question, one that comes up with a winning position all the time if you are longer term holder. All depends on your situation, someone made a good point about taxes and holding off if its near year end.
In jwcapital's case, if you worked out the math it comes out to be about the same. OP is right, you are long a synthetic call when you are long stock and long put. If you just swapped out of your winner and into calls only, you not only accomplish same risk/reward, but you take all that capital off the table to put to work elsewhere while you are using your winnings in theory to press your same position with downside protection. The calls and puts are priced using same volatility, this is why in theory its the exact same position, except less margin or cash up.