Agreed. But it's not about how much he can recoup. It's all about the process.
I wish him NFLX to go back where it was before the earnings announcement. As long as he can learn something from this experience.
Repair Strategy for NFLX Short Put
- Thread starter learningoptiontrading
- Start date
I wish him NFLX to go back where it was before the earnings announcement. As long as he can learn something from this experience.
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.)
Be patient. You've really screwed the pooch on this one. Take your time to get out.
SO! Here we are (in reality) approaching $378, and the morning has dawned considerably brighter.
BUT! Assuming the OP still has a $395 that's $20 ITM with 3.5 trading days to go, to answer the question of a "Repair Strategy"...
buy Jul20 395 for $19.30
sell Jul27 390 for $17.70
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and look for ~$ 1.60
(You could go Jul27 395 for $21.30 and put ~$1.75 in your pocket, by-the-way....)
BUT: a $10 call spread could be had at $390-$400 for $2.90....
a $10 call spread from $395-$405 for ~$2.20.......AND would create $5 of 'freeboard' for you between $390 and $395 in which both spreads would be OTM and BOY is it easier to move then........
Lots of ....um.....eh.... "options" for you.
That was quite the ride today.
- Ask for the 395 put is $17.10.
- $3100 unrealized loss at the open to a $143 unrealized loss at the close.
I want to thank everyone for the inputs and advice so just want to give an update on where I stand and what I ended up doing. I learned many valuable lessons from this trade. I originally wished that I was still on my virtual account when this happened but then I felt like I wouldn't be working so hard to try to evaluate and understand my repair or cut-loss options if it had been on virtual account, so I'm still kind of glad that this loss was real and not virtual.
Through this trade I now learned that:
1. Don't sell a put so close to an earning report release date and so close to the money no matter how much you believe in the company. I did not think $15 out was still considered very close to the money (taken into account the premium recevied), but I was wrong. As one of you pointed out, $15 is only about 3% in this case so it's still too close to the money.
2. Don't panic. If I had cut loss immediately and moved on without considering any alternative, I think that would very much be a panic move and I would end up exiting the position at the worst point of the trajectory. I know it could have gone both ways, but given that I believe in the value in Netflix, it'd very much be a panic move (for me personally) if I just cut loss and move on and not think about what I could have done otherwise. I do agree cutting loss when things don't go your way is important in many situations but I hope to be able to consider alternatives before making a decision.
3. And in this case, I was able to learn a cool repair strategy that I did not know of because of considering other alternatives. Thanks to you guys who provided various suggestions in terms of potential repair strategies. In the end I went with @tommcginnis's brilliant repair strategy by buying back my 395 put this morning (I did it about an hour after market open), at the same time selling a 390 put with next Friday as expiration date. I was comfortable with that as it bought me more time. And then some time this afternoon I sold a vertical call spread 395/405 with next Friday as expiration. Thanks again, @tommcginnis
4. I understand it's better to start out right in the first place when placing the trade - there's no doubt about that. I definitely made a bunch of mistakes when first placing this trade. But I was also interested in knowing the 'options' to potentially fix or reduce the loss now that a mistake had already been made. If I just cut loss, give up and move on without thinking about it, I don't think I would have learned as much as I have.
Again, thanks for all of you all's help and passion in the topic, the original $3551 unrealized loss has become unrealized gain $1065 at this point.
And btw @OptionsOptionsOptions , good call. You really know NFLX.
Thank you all for participating in the thread!
Through this trade I now learned that:
1. Don't sell a put so close to an earning report release date and so close to the money no matter how much you believe in the company. I did not think $15 out was still considered very close to the money (taken into account the premium recevied), but I was wrong. As one of you pointed out, $15 is only about 3% in this case so it's still too close to the money.
2. Don't panic. If I had cut loss immediately and moved on without considering any alternative, I think that would very much be a panic move and I would end up exiting the position at the worst point of the trajectory. I know it could have gone both ways, but given that I believe in the value in Netflix, it'd very much be a panic move (for me personally) if I just cut loss and move on and not think about what I could have done otherwise. I do agree cutting loss when things don't go your way is important in many situations but I hope to be able to consider alternatives before making a decision.
3. And in this case, I was able to learn a cool repair strategy that I did not know of because of considering other alternatives. Thanks to you guys who provided various suggestions in terms of potential repair strategies. In the end I went with @tommcginnis's brilliant repair strategy by buying back my 395 put this morning (I did it about an hour after market open), at the same time selling a 390 put with next Friday as expiration date. I was comfortable with that as it bought me more time. And then some time this afternoon I sold a vertical call spread 395/405 with next Friday as expiration. Thanks again, @tommcginnis
4. I understand it's better to start out right in the first place when placing the trade - there's no doubt about that. I definitely made a bunch of mistakes when first placing this trade. But I was also interested in knowing the 'options' to potentially fix or reduce the loss now that a mistake had already been made. If I just cut loss, give up and move on without thinking about it, I don't think I would have learned as much as I have.
Again, thanks for all of you all's help and passion in the topic, the original $3551 unrealized loss has become unrealized gain $1065 at this point.
And btw @OptionsOptionsOptions , good call. You really know NFLX.
Thank you all for participating in the thread!
I don't see the unrealized gain of $1065. There must be a typo in the positions you opened.
- The puts are at a loss.
- Is it the call spread that is showing the profit?
- But no way are the calls making up for the put positions.
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** Thanks for the call-out, but if I can note: it's premature. 
(As in, next Friday -- when both the $390 put *and* the $10 call spread at $395 both might die uneventful deaths...)
** The roll down/out *cost* you a week of Ass-In-The-Wind time -- none of us believe it likely right now, but NFLX *could* continue down.
"Agggh!"
** The roll down/out *also*cost* you $2.50 which you could eat (and which might have grown instead of shrunk from today's open til close), but to remain revenue neutral, you.....
** You took another spread -- now splitting/sharing your incidence of risk to both sides of the market, by taking Jul27 $10-wide at 395/405.
** Without quibbling about nickels, if you got close to the $2.50 which you paid to roll the put down/out, you're flat on NFLX post-debacle. (And if you only got $1.90 as per the end-of-day numbers, "Meh!" Still pretty good. You've salvaged a goodly $12{???} of the $13.50{???} you took in.)
** BUT!! You're still "IN" the NFLX market for an extra week of exposure, on bottom at $390, on top (with $5 freeboard) for $10-wide, at $395.
MONITOR THOSE. NFLX could clear $395 *tomorrow* -- what are your new exit plans?
(Start planning now.)
(As in, next Friday -- when both the $390 put *and* the $10 call spread at $395 both might die uneventful deaths...)** The roll down/out *cost* you a week of Ass-In-The-Wind time -- none of us believe it likely right now, but NFLX *could* continue down.
"Agggh!"** The roll down/out *also*cost* you $2.50 which you could eat (and which might have grown instead of shrunk from today's open til close), but to remain revenue neutral, you.....
** You took another spread -- now splitting/sharing your incidence of risk to both sides of the market, by taking Jul27 $10-wide at 395/405.
** Without quibbling about nickels, if you got close to the $2.50 which you paid to roll the put down/out, you're flat on NFLX post-debacle. (And if you only got $1.90 as per the end-of-day numbers, "Meh!" Still pretty good. You've salvaged a goodly $12{???} of the $13.50{???} you took in.)
** BUT!! You're still "IN" the NFLX market for an extra week of exposure, on bottom at $390, on top (with $5 freeboard) for $10-wide, at $395.
MONITOR THOSE. NFLX could clear $395 *tomorrow* -- what are your new exit plans?
(Start planning now.
)
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