Repair Strategy for NFLX Short Put

[tommcginnis]

NFLX is so volatile that it could reverse back to $400 within a few days. Most earnings related moves are set-in-stone throughout the week - but not NFLX.

A very true statement.

OP should "Be Advised."
(And remember not to 'cross steams' not to be inattentive to any call spread.)

 

[learningoptiontrading]

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.

I guess my question was: it’s possible to exit the position by buying the put back? Wouldn’t the buyer exercise early to capture the large profit, preventing me from exiting by buying back?

Because if I were the put buyer, I would want to exercise early in this case - would I have been wrong to exercise early as the put buyer?

 

[Robert Morse]

I guess my question was: it’s possible to exit the position by buying the put back? Wouldn’t the buyer exercise early to capture the large profit, preventing me from exiting by buying back?

Tomorrow, do not worry about what the longs do. You are short, losing money. If you are still short tomorrow on the open, you can buy it back--or not and take your chances. It's your money,

 

[eaglefeather]

For future reference, a cash covered put is a covered call, sort of.
See Randall Liss' video:

 

[SmallFry]

Hey @learningoptiontrading

You should be fine to buy pack the short put anytime before expiry.

I think I know what you're trying to ask. The person on the other side of your trade is matched randomly. The buyer is most likely to close the position selling it on the market rather than exercising. Or they are someone that wants to buy ITM NFLX puts because they think it will go down more (or other reasons).

There is still exercise risk as your short ITM option gets closer to expiry.

Bottom line: It's all random who takes the other side of your trade as it is arranged by the exchange. There is no exact probability for assignment risk but it's said to increase as it gets closer to expiration. (ex: ITM short, OTM long.)

 

[learningoptiontrading]

Thanks @SmallFry - that addressed the question mark in my mind!

 

[FSU]

Your short option will not be exercised.

 

[lindq]

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.

Give thanks to your creator that you only sold 1 contract. Short puts have been the death of many traders. Take your medicine and move on.

 

[Lee-]

It's almost always better to close a long contract than to exercise it. As such, I think your risk of assignment is low, but it's non-zero.

I would invite you to look at bull put spreads in the future. Another way to look at this is that you're soon to be the proud owner of NFLX shares (with a cost basis of $379.33). If it helps you psychologically, you could then sell covered calls against it until the shares get called away, but a covered call is effectively a short put so not really different than closing your position and selling another put.

NFLX could go to $450 by friday or it could go to $250. No one knows. I think NFLX is overvalued, but I think plenty of companies are over valued and that doesn't stop their prices from going up meanwhile companies I think are under valued keep going down. Although this is why I trade options and not underlyings (I recognize I'm bad at picking direction).

In any case, consider that closing your position will at least cap your loss. I usually stay away from earnings, but with this big of a drop, I'm actually considering buying calls for what it's worth (keep in mind my previous comment regarding my ability to pick direction).

There is a good point about losing on an earnings play as your first live trade -- it won't embolden you with over confidence. Just imagine if you were right, felt empowered, and kept upping the bet on earnings plays until you ultimately got a much larger loss. I'd consider this a blessing in disguise.

 

[ET180]

I did paper trading in a virtual account for a while and had mostly gains and small losses.

The problem was the entry. You sold way too close to the money on a volatile stock. Yes, NFLX is in an uptrend, but wasn't the YTD gain earlier today around 100%? The only time I would consider selling options that close to ATM that is if the premium was really rich and I shorted, say 50 shares of stock for every put expecting that the stock would drop or not go up much or if I sold a vertical put spread expecting the stock to go higher. I almost sold a vertical ATM put spread on NFLX today, but thought it was too much of a gamble. Maybe I'm a chicken, but I wouldn't consider selling any closer than 15 delta naked options on NFLX. I think I'd just close the position. It could bounce and will likely be higher, but not sure how long you'd have to wait. I wouldn't be surprised to see NFLX at 370 or 330 at the end of the week. Either sounds as likely.