That's really going to depend on your outlook of the stock. If you really think the stock is going down in the short term but still has the potential to go up in the long run, if you are able to roll it to the next expiration with a net credit, then you can roll it forward another period but you run the risk of the price going down even further and eventually you won't be able to roll it forward with a net credit and you would have to either cut your losses by buying back the ITM option or risk getting assigned the shares with even a bigger loss. Considering that your short put is already deep ITM, you might already not be able to roll it forward with net credit. Then in this case, if you feel the stock has the potential of going down further significantly, more than the magnitude of the option price, maybe you can buy the put instead so you will be in for the ride down and compensate for some of the losses on the short put. You can also consider selling some calls as well. You already own shares of the stock so if your calls do get called away you will be covered. As long as you are able to sell calls with strikes above the purchase price of your shares, you won't incur losses when and if you get assigned on your short calls.
Short put is deep ITM. Advice!
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That's really going to depend on your outlook of the stock. If you really think the stock is going down in the short term but still has the potential to go up in the long run, if you are able to roll it to the next expiration with a net credit, then you can roll it forward another period but you run the risk of the price going down even further and eventually you won't be able to roll it forward with a net credit and you would have to either cut your losses by buying back the ITM option or risk getting assigned the shares with even a bigger loss. Considering that your short put is already deep ITM, you might already not be able to roll it forward with net credit. Then in this case, if you feel the stock has the potential of going down further significantly, more than the magnitude of the option price, maybe you can buy the put instead so you will be in for the ride down and compensate for some of the losses on the short put. You can also consider selling some calls as well. You already own shares of the stock so if your calls do get called away you will be covered. As long as you are able to sell calls with strikes above the purchase price of your shares, you won't incur losses when and if you get assigned on your short calls.
Thank you Secatu for your encouraging words. I have a cash-covered put. We are near retirement so our portfolio contains a large portion of cash. I will heed your word and keep learning (and try not to make the same mistake twice).
Thank you Taowave! I guess I am not as smart as Buffet, hence I am not as rich !-)BWS's reply was spot on.....
It helps that you are the first to say you are not an option trader...
First and foremost,there is no such thing as option repair.See BWS responce.
You dont make a trade to get out of a hole you dug and fell in...
You do trades to make money,as in place a trade that has the highest expected return.
In 1 million years.would you ever roll your put,i.e sell a calander as an opening position??
If not,why do it? Does it stand on its own??
More to the point,you need to stick to your game plan,and effectively use options per your comfort level/understanding...
You appear to be a value type trader/investor as opposed to a growth/Momo guy...
You sell options at strikes that you would HAPPILY own the stock if put. Im assuming you are also achieving a decent return for selling the put .Why take 90% of the downside risk for a meager return if dead right???
The only thing you have to ask yourself at this point is has your fundamental valuation of the company changed.It appears not,so you should be content with getting assigned and owning shares.
IMHO,you traded exactly as you planned and were correct in selling the put as opposed to buying shares. Buffet does exactly what you do,but doesnt blink when Mr Market farts..
The only time I would be rip roaring mad if I traded as you do,is if i sold a put for 2 percent of notional,and the stock rallied 30 percent .Nothing worse than being dead right and not making real money..FWIW,selling low delta puts does not backtest well in bull markets..DUH
Thank you TheDawn. Your advice is specific and useful!
Did think about selling call, just don’t know at what strike price yet. You must be a mind readerFor his style of trading he really doesnt need to understand the greek alaphabet assuming he can define and stick to his gameplan...
Hes doing what every other retail newbie does by rolling...
Odds are his next move it to sell an OTM call not realising hes locking in a loss for pennies on the dollar...
Been there,done that
Stock craters, you roll the put and now you want to sell an OTM call??
Please dont...
Please dont...
No I won’t. That’s why I am on this board, getting beat up but learn valuable lessons!
I sold 2 contracts of Sept 16 MDT PUT @97.5 for $5.6 when it was trading @104 back in May, figuring i can get another 10% discount. I rolled them to Oct 24 paying $9.24 and gotten $9.77 when the price dropped to $86. So my break even would be $91.37
I thought you were much deeper in the hole,Stock is at 89.78 and you initial Break even was 91.90..
Knowing nothing about the stock other than the 1 year price range and 30 day "rolling" vol,you made a decent initial trade,cant second guess yourself on that one.
What I really dont like is the 35 day roll to pick up .53.. What does that do for you??
If your fundamental view hasnt changed why not let the chips fall where they may and if you get assigned,you are long at 91.9( as opposed to 104) or if it rallies,your initial 9/16 put may go out worthless.. Now,you have 93% of the downside risk for an additional 35 days,and no upside if you are dead right and the stock goes above 97.5..All for .53
Knowing nothing about the stock other than the 1 year price range and 30 day "rolling" vol,you made a decent initial trade,cant second guess yourself on that one.
What I really dont like is the 35 day roll to pick up .53.. What does that do for you??
If your fundamental view hasnt changed why not let the chips fall where they may and if you get assigned,you are long at 91.9( as opposed to 104) or if it rallies,your initial 9/16 put may go out worthless.. Now,you have 93% of the downside risk for an additional 35 days,and no upside if you are dead right and the stock goes above 97.5..All for .53