I'm long the stock and sitting on a paper loss. I'm still bullish on it and think it'll recover in a couple of months. What's the best way to trade options around the position to generate income without adding too much risk? Keep selling weekly DOTM CCs? Thanks!
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Option trade idea while waiting for AAPL to recover?
- Thread starter turkeyneck
- Start date
Can't sell options without taking some kind of risk:
either you'll be doubling down or giving up the rebound in the stock (which is your thesis).
either you'll be doubling down or giving up the rebound in the stock (which is your thesis).
umm.. maybe if you think it will go lower.. get out.. get leverage with options either by putting on a debit spread with calls to get deltas of your similar position or less.. just so you don't miss the upside if there is some.. sell a otm credit spread below the price at which you think it will drop to.. and just wait till you see the print that you want.. sounds like your having buyers remorse.. you either believe in your investment.. or you don't.... don't be me.. and right when you get a little underwater in a trade you exit when your down.. when its suppose to be a long term investment.. or don't be like me and tern a short term trade into a long term trade.. "oh it will eventually come back"
Quote from turkeyneck:
I'm long the stock and sitting on a paper loss. I'm still bullish on it and think it'll recover in a couple of months. What's the best way to trade options around the position to generate income without adding too much risk? Keep selling weekly DOTM CCs? Thanks!
Put on 1 x 2 ratio spreads on the call side. This will increase the size of your position on the rebound at zero cost. Yes, you'll lose the stock if it completely rebounds, but that is what you want it to do, rebound. You can always re-establish a position again if you sell your stock at higher prices.
Quote from Maverick74:
Put on 1 x 2 ratio spreads on the call side. This will increase the size of your position on the rebound at zero cost. Yes, you'll lose the stock if it completely rebounds, but that is what you want it to do, rebound. You can always re-establish a position again if you sell your stock at higher prices.
Good idea.
But three caveats:
1. You get the range you are interested in.
2. You will not get satisfaction on your position until expiry. So if it rallies, you won't be making much money as you get shorter gamma.
3. You won't generate income.
Generally these work when vol is high and skew is flat - AAPL will probably have neither tomorrow.
Quote from newwurldmn:
Good idea.
But three caveats:
1. You get the range you are interested in.
2. You will not get satisfaction on your position until expiry. So if it rallies, you won't be making much money as you get shorter gamma.
3. You won't generate income.
Generally these work when vol is high and skew is flat - AAPL will probably have neither tomorrow.
Let's give an example.
Say he is long 100 shares at 650. Stock is now 610. Let's just say for arguments sake he can put on the 625/650 1 x 2 call spread for even. I know vol will get crushed tomorrow so if he has to pay a small debit, same difference. He buys the spread and if AAPL recovers to 650 by DEC, which I think it will, he makes back all his loss from 650 to 610 and he makes another 2500 on the ratio spread up to 650. Above 650 he is flat. If AAPL trades down to 300 he still has the same 100 shares he would have if he were just holding it like he is going to do anyway. He gets to basically double up his position at zero to low cost back to his cost basis. That's the best deal he is going to get. The 1 x 2 is a no brainer if one is already long the underlying and doesn't want to sell their stock on the lows.
Why not share the price you bought at, so the traders here can offer more reailstic and useable advice?
We have no idea if youi bought closer to 700 or 625.
Are you using margin for the trade, or is it 100% cash?
Is the trade in an IRA type account or a regular one?
What is your approval level for trading options?
Why are you considering weekly vs monthly?
If you are hoping to avoid ownership of a stock, weekly options may be a good way to go.
But once you actually own a stock, you may be better off considering monthly.
But that's just a personal opinion.
We have no idea if youi bought closer to 700 or 625.
Are you using margin for the trade, or is it 100% cash?
Is the trade in an IRA type account or a regular one?
What is your approval level for trading options?
Why are you considering weekly vs monthly?
If you are hoping to avoid ownership of a stock, weekly options may be a good way to go.
But once you actually own a stock, you may be better off considering monthly.
But that's just a personal opinion.
Quote from Maverick74:
Let's give an example.
Say he is long 100 shares at 650. Stock is now 610. Let's just say for arguments sake he can put on the 625/650 1 x 2 call spread for even. I know vol will get crushed tomorrow so if he has to pay a small debit, same difference. He buys the spread and if AAPL recovers to 650 by DEC, which I think it will, he makes back all his loss from 650 to 610 and he makes another 2500 on the ratio spread up to 650. Above 650 he is flat. If AAPL trades down to 300 he still has the same 100 shares he would have if he were just holding it like he is going to do anyway. He gets to basically double up his position at zero to low cost back to his cost basis. That's the best deal he is going to get. The 1 x 2 is a no brainer if one is already long the underlying and doesn't want to sell their stock on the lows.
Yes, into expiration. Prior to expiration he won't see as much pnl. I just want him to know that.
If AAPL goes to 650 tomorrow, he will find himself only up 25 points on the whole structure. So he will be receiving a lot of theta but he won't get the same satisfaction he would have just staying long the stock where he would be up over 40. 650 is only 6%. AAPL could be there next week given the way it's been moving. Will the OP be okay with only a 25 point gain after losing 40 in the last week or so? At 660, he's up only 30 points vs 50 just being in the cash.
I'm not saying it's a bad structure. I think it's a good structure. I used to trade a lot of them in index and made a lot of money doing it. But it has it's nuances and if the OP wants to retain upside exposure immediately, it's not the right structure for him.
Quote from newwurldmn:
Yes, into expiration. Prior to expiration he won't see as much pnl. I just want him to know that.
If AAPL goes to 650 tomorrow, he will find himself only up 25 points on the whole structure. So he will be receiving a lot of theta but he won't get the same satisfaction he would have just staying long the stock where he would be up over 40. 650 is only 6%. AAPL could be there next week given the way it's been moving. Will the OP be okay with only a 25 point gain after losing 40 in the last week or so? At 660, he's up only 30 points vs 50 just being in the cash.
I'm not saying it's a bad structure. I think it's a good structure. I used to trade a lot of them in index and made a lot of money doing it. But it has it's nuances and if the OP wants to retain upside exposure immediately, it's not the right structure for him.
OK, I didn't hear him say any of that. He just mumbled something about earning income in the meantime which all option trades should seek income as in a profit. I'm trying to get him to take advantage of the situation the market is giving him. He got a pullback in the stock, do something with it. There is NO way to get money back. Options trading does not work like that. I can't get back my losses from any of my old trades either. He has to look forward with "new" trades. He sounds like a long term investor so I have no idea why he would be "upset" about making money if the stock goes back up. He can make the ratio spread as wide as he wants. I have no idea what his cost basis is. He can manipulate the strikes anyway he wants. Of course, he can always do nothing. But there is no way to "repair" this situation and I get highly annoyed when guys think they can go back in a time machine and fix trades that already happened. The ratio spread is the optimal spread for the hand he has been dealt at the moment going "forward". Just my opinion of course.
Edit:
Here is what he said.
Quote from turkeyneck:
I'm long the stock and sitting on a paper loss. I'm still bullish on it and think it'll recover in a couple of months. What's the best way to trade options around the position to generate income without adding too much risk? Keep selling weekly DOTM CCs? Thanks!