Sold Deep OTM Puts that Became Deep ITM - let it assign or roll over?

Quote from beefcaketrade:


I dont mind taking the stock. I just rather hold it in the form of a short put.

But the options have wide spreads. Wide enough that even on expiry I lose a lot of the time value. So I guess the only way to 'gain' the time value is to short at the close on opex friday. Then get assigned saturday for the cover and this way I get the time value back.

Meanwhile I want to sell the put again, so that when stock rises back to old levels and above the strike I capture the loss and retain some extra time value.
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Given you're comfortable holding shares and you think it'll rise back to old levels just wait to get assigned shares and then sell a call at the strike you originally sold puts.

That will be the same thing as covering your put and reselling, just with less headache and chance of doing something incorrect.
 
Quote from beefcaketrade:

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Is this an ok strat?
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If you not that far OTM its fine...you can add a bit of juice by selling the OTM call perhaps a month farther out...so Sell the OCT put and NOV call. If X is at 25 and your put is 27...roll it to OCT 25 and sell NOV 27 call. Danger there of course it X goes to 30! If your afraid of that then sell the NOV 27-30 vert...capped upside risk and give yourself a little bit more. There are so many ways to play this you are limited only by your imagination and pocketbook.
 
You'd probably get screwed on slippage trying to roll ITM puts.

I'd take assignment and sell calls, also - if I wanted to stay in the trade.

It depends though on your cost of the assignment compared to cost of carrying the shares and short calls.

But I'd rather trade shares and OTM calls, rather than ITM puts.
 
Doesn't taking assignment and selling calls against it (Covered call) achieve the same as rolling the put? Not sure, but if it is so, and your conditions for entering the trade are still present, just roll it
 
Yes, it's the same. It really depends on costs and how you want to work the trade.

In the markets that I trade, ITM options are rather illiquid and it seems that traders trade the synthetic rather than messing around with ITM. Liquidity is in OTM.

If liquidity isn't an issue, then yes, the roll is probably the most efficient way to go.
 
Thanks for the advice guys.

Youre right, I could just take the stock assigned and then sell calls covered to capture upside and time premium that way.

However I think there is one slight benefit to holding a short ITM put position versus owning stock and shorting call. I dont need to use as much capital?
 
Actually I dont think I can roll it by closing out the contract on opex friday because the spreads are horrible. I think they will become close to the time value I already earned by selling the OTM put originally.

Cause I originally sold a OTM put, so I didnt get much money for selling the put. Unfortunately its not DITM and the spreads are horrible so ths spreads are as wide as what I earned.

I think the only way to capture this time premium is to be assigned. My fees are not that high so its ok.

So I guess I will be shorting the stock at opex friday right at market close. At the same time I will immediately sell a deep ITM put of the same strike out further in the calender. Then on saturday the stock assigned to me will be used to cover the short that lasts 1 day. And the original short put will be closed off at zero value so I capture the time value earned.
 
Quote from beefcaketrade:

Actually I dont think I can roll it by closing out the contract on opex friday because the spreads are horrible. I think they will become close to the time value I already earned by selling the OTM put originally.

Cause I originally sold a OTM put, so I didnt get much money for selling the put. Unfortunately its not DITM and the spreads are horrible so ths spreads are as wide as what I earned.

I think the only way to capture this time premium is to be assigned. My fees are not that high so its ok.

So I guess I will be shorting the stock at opex friday right at market close. At the same time I will immediately sell a deep ITM put of the same strike out further in the calender. Then on saturday the stock assigned to me will be used to cover the short that lasts 1 day. And the original short put will be closed off at zero value so I capture the time value earned.
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You don't need to do all that. You're assured of assignment, so simply sell the call you'd like to use for the (new) CC. It should be the same strike that you're contemplating for the new short put.
 
Quote from drownpruf:

You don't need to do all that. You're assured of assignment, so simply sell the call you'd like to use for the (new) CC. It should be the same strike that you're contemplating for the new short put.
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Yeah I could do that but if I take the stock I use a lot of capital whereas if I keep i in the form of a short put I use less capital right? In terms of margin borrowing might be advantage there if I have cash funds deployed already in other stocks?
 
Quote from beefcaketrade:

Yeah I could do that but if I take the stock I use a lot of capital whereas if I keep i in the form of a short put I use less capital right? In terms of margin borrowing might be advantage there if I have cash funds deployed already in other stocks?
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Yeah sure, depends on the broker.
 
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