You sure are! Closing is fine too of course, but if we maintain the same assumption and we want to keep the trade on, we can roll forward for a credit if the position is undefined risk.
There are different views on when to roll a naked put option (or the put option of a strangle), when a) Strike price is touched b) breakeven as measured from the current strike and net credit received c) the market value is 2x (100%) or 3x (150%) the credit received on the option ... If the stock is dropping well past break-even point, but the theta is really high due to low DTE (say 3-10 DTE), and you still have long bullish views on the stock, QQ1: Does it make sense to keep the option and profit from the high theta decay (say 1% on margin), and wait to last possible moment (i.e. 1-2 DTE, and/or if there's a big swing low) until the extrinsic dries up and then roll out to the same strike (for a net credit) to further lower cost basis as measured from the strike and/or roll out and down for a net credit? QQ2: Is rolling out vs rolling out and down generally better (assuming outlook on stock is still slightly bullish in long run) if the current price is trading well below that current strike (rolling out to an ITM vs ATM/OTM)?
What happens to wash sale rule if you keep rolling your puts as described in the video from December to January to February and so on and so forth and eventually taking an assignment. Please help. Thank you!
Why don’t you roll this option 95 when stock price touch 95 so you can roll for next month for example strike 90 using this new credit of strike 90 to buy back strick 95, instead leave the stock deep ITM??? Any other next month strike below strike you have before the stock price deep and with enough premium to cover zero to zero gain?
Definitely an option! As long as the current month option doesn't take on intrinsic value, it's pretty easy to roll out in time AND further OTM for a small credit. This maintains the value of the initial sale, but moves the strike further OTM. A little different than keeping the same strike and rolling out in time, which would yield a higher net credit. Just a tradeoff, totally acceptable either way!
Assignment risk is generally associated with lack of extrinsic value in the ITM option. When someone exercises their option, they give up all extrinsic value as there is no extrinsic value in long or short stock. Therefore, rolling the option out into the future actually reduces assignment risk, because it adds extrinsic value to the trade. ITM options still have assignment risk, but the more extrinsic value in the option the better in my eyes, as that is just more value the person would be giving up if they actually exercised. That is why we usually see assignment in SUPER deep ITM options, or in options that are about to expire.
Sure - as long as there is liquidity in the cycles we're rolling out to, and we can handle the buying power that may increase if the option is deep ITM.
Well if you have a short put that is OTM, it doesn't take on intrinsic value until the strike is breached, so the BPR will be relatively low. If the option then goes ITM, it now has intrinsic value so the BPR will increase. You can see this on any option chain in a margin account, by comparing an OTM option to an ITM option's buying power reduction.
Rolling = closing the trade for a loss, then opening another trade on the same stock for a credit. You just have to subtract the loss from the new credit. It is tricky to keep up with because your platform shows you're making a profit, but you are really in the hole. Easier to just take assignment, then sell calls so you get to see what you're really making, and there is no confusion.
I am still learning, but what I gather, rolling vs buying back at a loss and re-entering, is to avoid your option called while you wait for a fill. I didn’t get my basis reduced when I sold for premium and later bought myself out of contract.
Do you mean when we roll the option and the credits that we gonna received, which showed at the system have yet to substrate the cost of buying an option (buy to close) ? Thanks 👍🏼
hehe. While it's actually a VERY good video. This did not age well... Because the range-bound era of 2016 is so different to where we are now... when selling strangles? you might simply get STONKED out!. So be careful with those undefined risk trades RN.... At the end of the day cost reduction is the golden rule.
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A few did comment on this, but the missing piece of the equation is its not clear what is meant by "raw" value ?
Thanks a lot for the great video. However, would you kindly help to explain bit on where or how to calculate the raw value pls ? Thank you
Thank you! This explains a lot!
When you roll these trades, aren't you also keeping the nightmare alive?
You sure are! Closing is fine too of course, but if we maintain the same assumption and we want to keep the trade on, we can roll forward for a credit if the position is undefined risk.
There are different views on when to roll a naked put option (or the put option of a strangle), when a) Strike price is touched b) breakeven as measured from the current strike and net credit received c) the market value is 2x (100%) or 3x (150%) the credit received on the option ... If the stock is dropping well past break-even point, but the theta is really high due to low DTE (say 3-10 DTE), and you still have long bullish views on the stock,
QQ1: Does it make sense to keep the option and profit from the high theta decay (say 1% on margin), and wait to last possible moment (i.e. 1-2 DTE, and/or if there's a big swing low) until the extrinsic dries up and then roll out to the same strike (for a net credit) to further lower cost basis as measured from the strike and/or roll out and down for a net credit?
QQ2: Is rolling out vs rolling out and down generally better (assuming outlook on stock is still slightly bullish in long run) if the current price is trading well below that current strike (rolling out to an ITM vs ATM/OTM)?
What happens to wash sale rule if you keep rolling your puts as described in the video from December to January to February and so on and so forth and eventually taking an assignment. Please help. Thank you!
I'm having problem in closing a trade for inverted strangles.
Is it best to close it when the px fall in between both px?😩
So the case of the strangle example, would you place a GTC order at 1.50?
Would this only apply when you roll an option that is at a loss?
Why don’t you roll this option 95 when stock price touch 95 so you can roll for next month for example strike 90 using this new credit of strike 90 to buy back strick 95, instead leave the stock deep ITM??? Any other next month strike below strike you have before the stock price deep and with enough premium to cover zero to zero gain?
Definitely an option! As long as the current month option doesn't take on intrinsic value, it's pretty easy to roll out in time AND further OTM for a small credit. This maintains the value of the initial sale, but moves the strike further OTM. A little different than keeping the same strike and rolling out in time, which would yield a higher net credit. Just a tradeoff, totally acceptable either way!
What prevents the other side to exercise the put option immediately after the roll takes place?
Assignment risk is generally associated with lack of extrinsic value in the ITM option. When someone exercises their option, they give up all extrinsic value as there is no extrinsic value in long or short stock. Therefore, rolling the option out into the future actually reduces assignment risk, because it adds extrinsic value to the trade. ITM options still have assignment risk, but the more extrinsic value in the option the better in my eyes, as that is just more value the person would be giving up if they actually exercised. That is why we usually see assignment in SUPER deep ITM options, or in options that are about to expire.
Love your videos! Too bad. Series is over. Can you roll a naked short put indefinitely until stock price bounces back?
Sure - as long as there is liquidity in the cycles we're rolling out to, and we can handle the buying power that may increase if the option is deep ITM.
thanks for replying. can you explain how the buying power increase if option is deep ITM? again you guys rock!
Well if you have a short put that is OTM, it doesn't take on intrinsic value until the strike is breached, so the BPR will be relatively low.
If the option then goes ITM, it now has intrinsic value so the BPR will increase.
You can see this on any option chain in a margin account, by comparing an OTM option to an ITM option's buying power reduction.
How do you calculate raw value
Rolling = closing the trade for a loss, then opening another trade on the same stock for a credit.
You just have to subtract the loss from the new credit. It is tricky to keep up with because your platform shows you're making a profit, but you are really in the hole.
Easier to just take assignment, then sell calls so you get to see what you're really making, and there is no confusion.
I am still learning, but what I gather, rolling vs buying back at a loss and re-entering, is to avoid your option called while you wait for a fill. I didn’t get my basis reduced when I sold for premium and later bought myself out of contract.
Do you mean when we roll the option and the credits that we gonna received, which showed at the system have yet to substrate the cost of buying an option (buy to close) ? Thanks 👍🏼
Cantango. Know what i’m sayin’?
hehe. While it's actually a VERY good video. This did not age well... Because the range-bound era of 2016 is so different to where we are now... when selling strangles?
you might simply get STONKED out!. So be careful with those undefined risk trades RN.... At the end of the day cost reduction is the golden rule.