Repair Strategy for NFLX Short Put

L

learningoptiontrading

This morning I sold a cash-secured put (1 contract) at $395 and collected $1567 premium at that price point. I looked at NFLX's previous earning reports as well as fundamentals and mistakenly thought the earning report it'll release after market close today would also be positive, and if negative, I didn't think it would drop more than $15. Anyway, NFLX closed at $400.48 today but when I checked just now (after market close and after earning report release), its "Mark" in thinkorswim is now shown as $343.89, and my P/L Day is -$3551.68. My expiration date for the put is this Friday. Any recommendation on any repair strategy for this scenario (if any exists)? What would you do in this case? Thanks for sharing your thoughts.

I did paper trading in a virtual account for a while and had mostly gains and small losses. Today was actually my first day trying option trading in a real account and came across this. Of course that's what happens.
 
If your just starting out ,your position size should be very small... My guess is 3500 is more then 1 to 3 percent of your account value...if so.. exit the postion...lick your wounds and reduce your position size to the piint where you can be objective... Shorting a put from 400 dollars sounds like a very very naive thing to do going into an earnings event on a high flyer...
 
My advice is to learn to take losses and move on. You sold the put expecting good earning. The stock is down about 14%. You were wrong. You will be wrong many times in the future. We all are. If it were me, I would buy back the put at some point in the morning with a limit order and move on to the next trade.

Good luck,

Bob
 
buy the Jul20 395 at $14
sell the Jul27 390 at $11.50
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net debit of ~$2.50

sell Jul27 395/400 vertical call spread, for about ~$2.50.
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about $0 flatness

0) Option prices are closed now, so the idea above is about revenue, not about strikes (which are taking the $55 delta).
1) rinse/repeat the theme above.
2) take $5 or so off each time, go out in time if needed, working the ITM puts ever down.
3) NEVER forget that you've now got $10 (or whatever comes later) in new risk on the top side.
4) NEVER "cross the streams" by having short calls go below short puts, which would leave you *highly*screwed*, should NFLX approach between those two prices.
(For example, short call at $360, short put at $365, and NFLX goes to $363, and you're ITM on both. :vomit:)

Be patient. You've really screwed the pooch on this one. Take your time to get out.
 
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Thanks for the advice, everyone. I have a question though which will also be a very naive one unfortunately, which is: I will have time to buy back the 395 put tomorrow morning? I’m just thinking theoretically wouldn’t the buyer want to exercise the contract first thing tomorrow since it’s down so much now? Would the contract not get exercised still and I will have time to buy back the put?
 
1st don't panic, this is an afterhours move and it could bounce by Friday.
2nd, you might buy protective puts now to limit further losses.
3rd, if you have the capital, you might accept assignment, and then recoup via stock repair and/or covered calls over time (but do hedge the long stock).
4th, if you can roll that position, you could create an offsetting synthetic short, but here it gets really complex (get is a word).
 
haha! I did similar foolish thing decades ago, and I told myself never ever sell naked option again.

NFLX is uptrend. But that doesn't mean we can earn $$$ selling put option.


My suggestion : cut loss immediately. Don't hope for the best and don't bother about the repair strategy.
After this, you will be able to have clearer mind, and can sleep well, and can map out better trading strategy.
Personally I don't like to have even a day of sleepless night.
 
learningoptiontrading said:
Thanks for the advice, everyone. I have a question though which will also be a very naive one unfortunately, which is: I will have time to buy back the 395 put tomorrow morning? I’m just thinking theoretically wouldn’t the buyer want to exercise the contract first thing tomorrow since it’s down so much now? Would the contract not get exercised still and I will have time to buy back the put?
More...


Be careful of over trading, revenge trading, vengeful trading.
Typically it happens after massive loss. and we ended up with even more losses and more sleepless night.

But if you are able to effectively neutralise negative emotion, and you are in calm, alert and bliss stage, then go and fine tune your trade plan and repair your damages.
 
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