Protecting unvested AMZN stock gains
- Thread starter andywatts
- Start date
Interesting dilemma, how to protect the already achieved gains in the possible simplest and cheapest way, that doesn't require a huge trading account? There is always a trade off, you can't do everything, protecting it cheap and letting it run higher...
Or can you? I will assume by January you can sell your shares and you don't want or can't sell naked options. Here is an interesting combo:
Just buying January ATM puts would cost you 6.4% of the current price. That is kind of expensive insurance. But what if you sell June vertical calls to finance those puts? Why June and why verticals? More time value does you can get more for it and if the price didn't change much by January, you can still sell them so you get back something. And verticals because you want to put up as little money as you can for margin.
Right now the June 1000/1100 vertical calls would give you 4.1%. So that would pay 2/3rd of the puts, price, your over all cost would be only 2.3% for the next 5 months. The margin/account size would be less than 6% of the current value.
Or can you? I will assume by January you can sell your shares and you don't want or can't sell naked options. Here is an interesting combo:
Just buying January ATM puts would cost you 6.4% of the current price. That is kind of expensive insurance. But what if you sell June vertical calls to finance those puts? Why June and why verticals? More time value does you can get more for it and if the price didn't change much by January, you can still sell them so you get back something. And verticals because you want to put up as little money as you can for margin.
Right now the June 1000/1100 vertical calls would give you 4.1%. So that would pay 2/3rd of the puts, price, your over all cost would be only 2.3% for the next 5 months. The margin/account size would be less than 6% of the current value.
Last edited:
I found another one, if you think there might be more upside left in the stock and you only worried about a smaller decline:
Sell deep ITM vertical calls. The January 900/1000 is $62 right now. So let's see the scenarios in January:
1. Stock is at 900 (slightly below). You only lost 4% (compared to the 10% stock drop), and you still have the stock, at this point you can sell it or write CCs on it, depending on your view.
2. Stock is between 900 and 1000. They will call the stocks away but your selling price will be 962, so your loss is 4%. Remember, buying the January ATM puts were 6.4%, although those give you protection down to zero...
3. Stock is above 1000, let's say 1050. They call it away for 962, but above 1000 the calls you bought will be in the money, so they will make you $50. So you actually caught a little part of the upside and made 1% extra, compared to today's price.
Sell deep ITM vertical calls. The January 900/1000 is $62 right now. So let's see the scenarios in January:
1. Stock is at 900 (slightly below). You only lost 4% (compared to the 10% stock drop), and you still have the stock, at this point you can sell it or write CCs on it, depending on your view.
2. Stock is between 900 and 1000. They will call the stocks away but your selling price will be 962, so your loss is 4%. Remember, buying the January ATM puts were 6.4%, although those give you protection down to zero...
3. Stock is above 1000, let's say 1050. They call it away for 962, but above 1000 the calls you bought will be in the money, so they will make you $50. So you actually caught a little part of the upside and made 1% extra, compared to today's price.
Just like what I remembered.
There are periods when you are allowed to trade. All senior management and board members, are allowed after all disclosure periods are over. No harm asking company compliance who can tell you yes or no.