IMO ....... The entry was OK based on his opinion on the stock having a maximum drop of $15.00. And due to NFLX's volatility he collected some extra premium.
Repair Strategy for NFLX Short Put
- Thread starter learningoptiontrading
- Start date
IMO ....... The entry was OK based on his opinion on the stock having a maximum drop of $15.00. And due to NFLX's volatility he collected some extra premium.
I see.
So earlier I sold the put for $15.67. The put can be bought for $14.30 now, so if I'm able to buy to close at $14.30 tomorrow morning, my total loss (for 1 contract) is only $137? Or did I do the math wrong? My P/L Day shown now is -$3563, so I'm surprised that the loss will become $137 if I just buy to close, or am I understanding this wrong? Or has the $14.30 option price not taken into account the after-market movement? Thanks for your patience guys.
So earlier I sold the put for $15.67. The put can be bought for $14.30 now, so if I'm able to buy to close at $14.30 tomorrow morning, my total loss (for 1 contract) is only $137? Or did I do the math wrong? My P/L Day shown now is -$3563, so I'm surprised that the loss will become $137 if I just buy to close, or am I understanding this wrong? Or has the $14.30 option price not taken into account the after-market movement? Thanks for your patience guys.
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- The put has a value of $52+ if the current NFLX price holds.
- By market open (9:30 AM EST ) on Tuesday it will be significantly different - up or down.
Is the $52+ calculated from the delta?
ah I see. Ok thanks.
A $15 move on a $400 stock. That's a 3.75% move on one of the most volatile tech stocks out there. Option market was pricing in something like a 32 point move for the week. Sure, the trade could have worked out and he could have pocketed $1500 in one week. But what was the reasoning that NFLX would only drop no more than $15 after rallying 100% YTD? What goes up can't come down? I see some support around $380, but I also see a double-top.
My advice is:
- Trade in order to obtain a position you desire, as if you were flat and has no position.
- Risk management: vol has now increased and typically your exposure should decrease.
- Forget about the losses, it's history.
Now that it tanked do you think it'll bounce back? or keep dropping? or sideways?
If you don't know, close your position.
If you think it'll bounce back, hold but consider lower your exposure by buying back partially or further strike. Avoid anchoring bias - Don't think you must win it back. (also you can move the short put to a lower strike. But naked short is always dangerous.
If you think it'll drop further, don't be afraid to flip your position. It's okay to change your view - and then get it wrong again.
Whatever you do, make sure you can afford the losses. Underlying can go 30% either way and make sure you can handle that financially and mentally.
- Trade in order to obtain a position you desire, as if you were flat and has no position.
- Risk management: vol has now increased and typically your exposure should decrease.
- Forget about the losses, it's history.
Now that it tanked do you think it'll bounce back? or keep dropping? or sideways?
If you don't know, close your position.
If you think it'll bounce back, hold but consider lower your exposure by buying back partially or further strike. Avoid anchoring bias - Don't think you must win it back. (also you can move the short put to a lower strike. But naked short is always dangerous.
If you think it'll drop further, don't be afraid to flip your position. It's okay to change your view - and then get it wrong again.
Whatever you do, make sure you can afford the losses. Underlying can go 30% either way and make sure you can handle that financially and mentally.
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Robert Morse
Sponsor
learningoptiontrading,
I do not want to make light of your loss. Many here have suggested better ways to trade earning or sell puts with protection around earnings. I'm going to tell you from someone that has been in the business since 1981 and trade options professionally for 25 years, that trading earnings is very hard and should be avoided without a process in place that is more than a feeling that that a stock will or won't make a move from earnings. My suggestion is to avoid earning at the beginning of your option learning. Let's call it an expensive lesson.
Bob