Short Put Adjustments Explained
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- Опубликовано: 6 июл 2024
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**FINAL ADJUSTMENT B/E IS $53.80, NOT $58.80**
thanks. I was wondering about that =D
Love your education. You go behind the scenes and you get real. Thank You
He says right to buy, but with a short put you actually have the obligation to buy at the strike.
Thank you from india
I need your entire Playlist please
Can we short future contract, when stock price touches our sold put strike price?
Could you sell a call credit spread against it if it breaks your put
Hi Mike, LOVE your videos!!! I am doing these and they are SO difficult sometimes to keep track of!!! Is there an options Calculator you can recommend or do a video about?? Thank you!!!
Thanks! Glad you're enjoying the content!
Check out the order chains feature on tastyworks which keeps track of rolls for you:
tastyworks.freshdesk.com/support/solutions/articles/43000608476-order-chains-overview?_sp=a347e792-2bc4-49bf-9c1e-3d9c6ee09cdf.1613679076755
@@tastyliveshow Wow! I certainly will Mike. I really enjoy all of your options videos very much they are so educational.
Nice
Great...just above my "paygrade at this time".
What about selling an OTM call and creating a strangle?
Certainly could consider that, but if you get a reversal in the stock price you could take heat to the upside, where we didn't have risk before to the upside.
Hi Mike. Thanks for the very informative video. If the stock price moves below the BE price prior to expiration, will the brokerage company automatically assign the stock position. This seems to be a fuzzy/grey area on when this actually occurs. Does the automatic assignment only happen on the day of expiration?
It will not - assignment risk is based on extrinsic value, since the counterparty burns the extrinsic value in the position by converting it to stock, so as long as the ITM option has extrinsic value, it is not likely to be assigned. Even if it is assigned, risk doesn't change, you just get that extrinsic value immediately instead of waiting until expiration.
Assuming we close out our position using the roll out and down and the stock price ends up above the short strike price, what will be the net profit/loss
Whatever the net credit is overall. If you sold the put for $1.00 and rolled out and down for $0.20 and it expired OTM, you'd make $1.20.
Interesting strategy. As long as the stock doesn't take a big hit, it should help.
from experience selling puts when RSI is oversold gives higher premiums from lower prices/IV increase also has lower chance of blowing up in your face
If my short put looks like it will be assigned deep itm I can usually roll to a less itm strike later day and still net a bit. Good for a bouncy stock that took a hit...
What do you do If you still have 45 or 60 DTE, (meaning it goes against you FAST ) and goes past B/E point? Are you closing? Seems rolling out will put you out to far in time?
I'm not necessarily doing anything, as long as the option still has a lot of extrinsic value. With a short put I'm ok with taking the shares, so I typically take a wait and see approach. If extrinsic value gets low, or if we get to ~21DTE, I'll roll at that point.
@@tastyliveshow very nice, this happened to me just this Octuber 2021 with MRNA, good to learn about this!
In October 2021, Moderna stocks were kind of overvalued, then Merck came out with news about a new pill for covid treatment, there I was learning how to use Credit Put Spread. hahaha I cut losses that was all I knew at that moment. Nice video.
Hey Mike, your B/E price on the last example for rolling down and out is incorrect. You received a net credit of $1.20 but your new strike is 55, making your B/E point $53.80, not $58.80
Sorry about that! We've made an annotation in the description.
He did it on purpose, to make you do the math!
If my initial risk is $100, and I continuously roll out in time, always using the same strike and always get net credit, then, with time, am I effectively creating a risk-free trade? i.e. I collect at least $100 in premium thru time
In time, yes. Ultimately if you have the ABILITY to roll a short put forward forever regardless of where the stock is, you're just collecting extrinsic value and it adds up month over month. Over time, you can have a risk-free trade if you collect more than what buying 100 shares at your strike price is worth. That is why trading small is so effective when selling naked options - if you trade small and give yourself the ability to hold a trade forever, especially something like a short put, you give yourself a ton of time to be directionally right and also reduce basis over time. That's the key!
I'd like to see this updated for coronavirus losses...
Mass gains after the stocks rebounded
There were likely not many losses as the market went up like crazy due to the expansion of the money supply.
Thanks a lot friend for this. This is such a great help. I just had a little Question. In this video you have mentioned that max profit could be $ -100. Shouldn't a maximum profit infinite ?
Muhammad,
Thanks! Glad you liked it!
If you bought a put or call, then the max profit is theoretically unlimited, but when selling an option the profit is limited to the premium collected when selling it.
WHAT ABOUT I SELL A CALL AT THE MONEY AT THE SAME EXPIRATION DAY WITHOUT MOVING THE PUT
Seems way too stressful to chase a loser out another 35 days that has no chance of profitability. What if it continues to fall, lose more rolling again? Only way this works is if you roll when the put is being challenged, if it's already past your strike and has intrinsic value you're too late and just accept the loss... unless you like the stress of keeping tabs on an option for another 35 days that cannot be profitable.
Selling a Put does NOT give you a RIGHT to buy stock. The right belongs to the PUT seller to sell you the stock at the strike price. BIG DIFFERENCE
True - the right to early exercise belongs to the put buyer, but the risk doesn't change. As a put seller, once you are filled on the contract you have the notional equivalent to 100 shares of stock, so whether you have the contract or end up being assigned shares, nothing changes other than extrinsic value being removed when assigned, and the buying power increasing.
wow this video seems like a mess lol i'll stick to my other educational resources on options trading
Does it make anyone millionarie?? ;to get 250 dollars , u risk 11,500 and doing all circus... this just makes u trading addict and broker becomes wealthy.
If your stock collapses you are out of business with your adjustment strategies. Keep learning and stop teaching. Play small till you learn your Greeks
The max loss is listed on the slides for these adjustments - the only adjustment that would induce more notional risk is the 2nd one - scaling into IV - this would require an additional put contract to be sold. The other ones result in realized losses, but offer the opportunity to wipe out those losses with the new trade. Additionally, they reduce the cost basis and therefore reduce the notional risk as it is still only 1 contract at risk, but an additional net credit is received which increases the overall net credit.
If the trader is not comfortable with the initial risk of one sold put contract, then they should not get into the trade from the beginning.