Cool! Very useful info, indeed! Thx!
Your demonstrated extension of the above is very interesting too,
but I need some time to grasp it fully... I still have only an analog brain...
Last edited:
The Put Seller's Journal
- Thread starter earth_imperator
- Start date
Your demonstrated extension of the above is very interesting too,
but I need some time to grasp it fully... I still have only an analog brain...
Trade Idea / Research
It's getting KOLD
I think the Ukraine war will be resolved by end of this year.
Then markets will normalize and prices will drop to normal levels, incl. NatGas.
Ie. NatGas then will IMO drop.
Then it makes sense to short KOLD now. KOLD is an inverse ETF: if NatGas falls then KOLD rises, and vice versa.
The following cash-covered short put trades for KOLD could be profitable (field "PL=... max=..." below) if the above forecast holds:
Based on market data today about 1h before market close, cf. also here.
CostBasis = Strike - Premium
It's getting KOLD
I think the Ukraine war will be resolved by end of this year.
Then markets will normalize and prices will drop to normal levels, incl. NatGas.
Ie. NatGas then will IMO drop.
Then it makes sense to short KOLD now. KOLD is an inverse ETF: if NatGas falls then KOLD rises, and vice versa.
The following cash-covered short put trades for KOLD could be profitable (field "PL=... max=..." below) if the above forecast holds:
Code:
KOLD DTE=119.42(2022-11-18-Fr) LT=0.03 S=14.9500 @BE=8.3307 (-44.28%) @S0(PL=44.05% max=44.05 % PLann=205.11% maxAnn=205.11%) K=12.00(-19.73% nKbef=11) fITM=0 B=3.60 A=3.74 balPr=3.66 ...
KOLD DTE=119.42(2022-11-18-Fr) LT=4.14 S=14.9500 @BE=7.9804 (-46.62%) @S0(PL=37.84% max=37.84 % PLann=166.67% maxAnn=166.67%) K=11.00(-26.42% nKbef=10) fITM=0 B=2.90 A=3.14 balPr=3.01 ...
KOLD DTE=210.42(2023-02-17-Fr) LT=0.15 S=14.9500 @BE=8.1538 (-45.46%) @S0(PL=83.35% max=83.96 % PLann=186.22% maxAnn=187.88%) K=15.00(0.33% nKbef=1) fITM=1 B=6.70 A=6.99 balPr=6.84 ...
KOLD DTE=210.42(2023-02-17-Fr) LT=0.13 S=14.9500 @BE=8.4790 (-43.28%) @S0(PL=76.32% max=88.70 % PLann=167.44% maxAnn=200.86%) K=16.00(7.02% nKbef=2) fITM=1 B=7.40 A=7.64 balPr=7.52 ...CostBasis = Strike - Premium
Sunday quiz
How best to manage a losing (winning) trade?
Variant 1: losing trade:
How to "rescue" a losing options trade? :
CoveredPut trade (ie. a ShortPut with "CostBasis = Strike - Premium" as collateral or margin security):
USpot=10.00 DTE=120 Strike=10.00 Premium=1.14 (IV=50)
After 10 days:
USpot=8.00 DTE=110 Premium=2.29 (IV stays same)
This means the position is losing $1.15 (-12.98% of CostBasis).
What best to do in such a situation? "Doubling-down"? Closing? Do Nothing? Other?
Variant 2: winning trade:
What would you do in the following situation (same position as above but now with different USpot and Premium after 10 days):
CoveredPut trade (ie. a ShortPut with "CostBasis = Strike - Premium" as collateral or margin security):
USpot=10.00 DTE=120 Strike=10.00 Premium=1.14 (IV=50)
After 10 days:
USpot=12.00 DTE=110 Premium=0.45 (IV stays same)
This means the position is in the win zone (profit = $0.69 = 7.78% of CostBasis).
What best to do in such a situation? Just close it, or short-sell even more of the same, ie. "doubling-up"? Do Nothing? Other?
Btw, these are the cases 4 and 10 in "The Table".
How best to manage a losing (winning) trade?
Variant 1: losing trade:
How to "rescue" a losing options trade? :
CoveredPut trade (ie. a ShortPut with "CostBasis = Strike - Premium" as collateral or margin security):
USpot=10.00 DTE=120 Strike=10.00 Premium=1.14 (IV=50)
After 10 days:
USpot=8.00 DTE=110 Premium=2.29 (IV stays same)
This means the position is losing $1.15 (-12.98% of CostBasis).
What best to do in such a situation? "Doubling-down"? Closing? Do Nothing? Other?
Variant 2: winning trade:
What would you do in the following situation (same position as above but now with different USpot and Premium after 10 days):
CoveredPut trade (ie. a ShortPut with "CostBasis = Strike - Premium" as collateral or margin security):
USpot=10.00 DTE=120 Strike=10.00 Premium=1.14 (IV=50)
After 10 days:
USpot=12.00 DTE=110 Premium=0.45 (IV stays same)
This means the position is in the win zone (profit = $0.69 = 7.78% of CostBasis).
What best to do in such a situation? Just close it, or short-sell even more of the same, ie. "doubling-up"? Do Nothing? Other?
Btw, these are the cases 4 and 10 in "The Table".
Last edited:
Q & A
Q: When does it make sense to "double-down" with a losing short Put position (CoveredPut in a CashAcct)?
A: It makes sense only if CurrentUSpot is >= InitialUSpot AND the position is in loss at least >= 5%.
This means IV has risen, which is of course not good for such a short position,
but it's a good situation for short-selling some more of the stuff.
This is the case #11 (and #8) in "The Table".
Rationale for this: the rise of USpot does further enlarge the BreakEven USpot point from current USpot position (ie. this is a good thing),
and rising IV means more big credit to earn when short-selling more.
And: also important to know: at expiration IV does not play any role anymore for this expiring position, as then only USpot alone counts!...
Q: When does it make sense to "double-down" with a losing short Put position (CoveredPut in a CashAcct)?
A: It makes sense only if CurrentUSpot is >= InitialUSpot AND the position is in loss at least >= 5%.
This means IV has risen, which is of course not good for such a short position,
but it's a good situation for short-selling some more of the stuff.
This is the case #11 (and #8) in "The Table".
Rationale for this: the rise of USpot does further enlarge the BreakEven USpot point from current USpot position (ie. this is a good thing),
and rising IV means more big credit to earn when short-selling more.
And: also important to know: at expiration IV does not play any role anymore for this expiring position, as then only USpot alone counts!...
Last edited:
Option Mysteries Solved
Percent Change is not always Percent Gain
When you yesterday open a LongCall trade, and today the Premium of that Call rises 60% then your profit is 60% if you close the position.
But if you yesterday open a ShortCall trade, and today the Premium of that Call falls 60% then your profit is NOT 60% if you close the position!
Proof:
Ie. the profit is just a meager 6.74%, not 60%
Btw. this applies also to LongPut and ShortPut (but here CostBasis = Strike - InitialPremium)
Percent Change is not always Percent Gain
When you yesterday open a LongCall trade, and today the Premium of that Call rises 60% then your profit is 60% if you close the position.
But if you yesterday open a ShortCall trade, and today the Premium of that Call falls 60% then your profit is NOT 60% if you close the position!
Proof:
Code:
Yesterday: USpot=9.90 DTE=30 Strike=10 Premium=1.00 (IV=92.47)
Today: Premium=0.40, ie. a change of -60%
For calculating the profit one needs to know that for a ShortCall the CostBasis = InitialUSpot - InitialPremium = 9.90 - 1.00 = 8.90, thus:
PL = InitialPremium - CurrentPremium = 1.00 - 0.40 = 0.60
PLpct = PL / CostBasis * 100 = 0.60 / 8.90 * 100 = 6.74 %Btw. this applies also to LongPut and ShortPut (but here CostBasis = Strike - InitialPremium)
Last edited:
Q & A
Q: When does it make sense to "double-down" with a losing short Put position (CoveredPut in a CashAcct)?
A: It makes sense only if CurrentUSpot is >= InitialUSpot AND the position is in loss at least >= 5%.
This means IV has risen, which is of course not good for such a short position,
but it's a good situation for short-selling some more of the stuff.
This is the case #11 (and #8) in "The Table".
Rationale for this: the rise of USpot does further enlarge the BreakEven USpot point from current USpot position (ie. this is a good thing),
and rising IV means more big credit to earn when short-selling more.
And: also important to know: at expiration IV does not play any role anymore for this expiring position, as then only USpot alone counts!...
Here's a BSM data set to play with:
Code:
USpot=10.00 DTE=120 Strike=10.00 Premium=1.1398 (IV=50)
After 10 days IV rises:
USpot=10.00 DTE=110 Premium=2.1629 (IV=100) --> PL = 1.1398 - 2.1629 = -1.0231
calcs with a calculator:
k=10; pr1=1.1398; pr2=2.1629; pl=pr1 - pr2; basis = k - pr1; plpct = pl / basis * 100; pr1; pr2; basis; pl; plpct
pr1: 1.1398
pr2: 2.1629
basis: 8.8602
pl: -1.0231
plpct: -11.5471 %The avg credit is then: (pr1 + pr2) / 2 = 1.65135
Last edited:
Table of MaxProfit and MaxLoss
Code:
Table of MaxProfit and MaxLoss
|| MaxProfit | MaxLoss
-----------||-------------------------|------------------------
LongStock || unlimited | InitialStockPrice
ShortStock || InitialStockPrice | unlimited
|| |
LongCall || unlimited | InitialPremium
ShortCall || InitialPremium | unlimited
|| |
LongPut || Strike - InitialPremium | InitialPremium
ShortPut || InitialPremium | Strike - InitialPremium
Last edited:
Nevermind, I see what you meant now about the stocks bit. But the put options not having unlimited loss? I do not get that.
The result of my recent research posted above titled "Percent Change is not always Percent Gain" (which BTW should have been "Percent Gain is not always Account Gain")
indicates that one better should trade long only as it has advantage over short trading as the numbers clearly show...
I'm now concentrating my research & study on this particular case...
indicates that one better should trade long only as it has advantage over short trading as the numbers clearly show...
I'm now concentrating my research & study on this particular case...