Help a noob unwind from a position?

Hey,

I just started trading and did something really stupid, and now I am stuck with 400 shares of something I don't want. I don't want to take a loss outright, and was wondering what some of the pros would do in my situation?

This is a pretty long post, so if you don't want to read it all, I've bolded the questions I am hoping to get answered.

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Here's the situation:

Cost Basis: $2.23 per share
Current Price: $1.23 per share

Strike prices for options are: $2.50, $5.00, and $7.50.
Expiration dates are: Dec, Jan, April, July

Low Liquidity in both the underlying and options market.

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Possible Method of Unwinding:

I am considering unwinding 200 shares of my stock at a breakeven point/possible gain/slight loss at the risk of holding 100 shares of my stock hostage. This would be great as that would get rid of half of something I don't want.

Here are the current strikes and ask prices of the Dec Put.
K: 2.50; P: 1.40
K: 5.00; P: 3.90
K: 7.50; P: 6.40

As you can see, the time premium for all the Puts are the same, i.e. $0.13, since the underlying is trading at $1.23. If I were to buy one, which one should I buy?

With something as illiquid as this, would the time premium really decrease as expiration nears? In other words, should I buy it now or wait until it nears expiration?

My potential strategy is to buy two puts at a total time premium cost of $0.26. And then sell a July call at a strike price of $2.50, which has a bid price of $0.30.

This would give me a $0.04 net gain on the time premium.

I would end up holding 100 shares hostage to the July call, since I am trading with a cash account.

What do you think?

Thanks!

 

sell half (200 sh) if still not moving sell half (100 sh) etc...

 

Thanks. I'm going to look at the P/L and make my decision. I think I did some math wrong too.

 

Would be helpful if you posted the stock name

 

Ouch, tough spot.

How did you get into such a position to begin with?

 

I'm trying to get the mod to delete my opening post. A lot of math was wrong - should have calculated it out in excel first.

My new strategy is to buy 4 Dec 2.50 Puts at 1.40 and sell 4 July 2.50 Puts at 1.55.

Stock is VRML.

 

Question: What would a pro trader do?
Answer: Sell 400 shares.

 

A pro trader would have done something long before the UL enarly halved in value

 

I know I know should have sold earlier. I have a list of 'don't dos' from this trade. But given the current situation...

 

If you sell 200 shares, buy 2 Dec 2-1/2 puts and sell 1 Jul 2-1/2 puts, you protect against add'l downside loss for 2 weeks and have little to no upside gain until somewhere north of $3. It's dead money. Are you comfortable with that?

A beter question would be, what are you trying to achieve with the usage of options in this underwater position?