Help!! ITM long put in loss

Discussion in 'Options' started by nike_ray, Mar 9, 2010.

  1. nike_ray


    Hi everyone.. Im new to options trading and have recently opened an account with IB..

    I got profits with my first few trades and got excited.. Some days ago I bought 5 March 60 Put contracts @2.92/ option ... Now the price of CAT stock is 58.91 and increasing and hence my loss is too.. The option price is 1.8..

    I have calculated and found that i can achieve a profit if stock falls to 57.5 as of today..

    Please tell me about any strategy that may work.. And also what in your opinion is the trend for CAT?

    Help me out fast as the expiration date is 19th march..

  2. We're in a bull market. Not saying it's going to keep going up, but I think holding puts in this market probably isn't a good idea. I would get out, especially considering the time decay since it's only two business weeks away.

    Also, consider learning about debit spreads. You'll risk alot less compared to the way you're doing it now, and I think that means alot.

    Take care.
  3. Your directional call on CAT was wrong. What was your exit plan? Never enter a trade unless you know how you're going to manage it.

    The 50 SMA is above the 200 SMA and price is above the 50 SMA. CAT reported OK earnings back in January. No reason to expect it to go down that I can see.
  4. tell me what your regular username is and i'll help you.
  5. TheMan


    got to love people that have no idea what they are doing trading live money

    and then to come on a message board and ask for advice

    what if i told you to close it, would you?

    what if i said, "Its going to turn you should double down. Would you do that?



    :confused: :confused:
  6. Buy 500 shares of CAT and sell 5 calls ITM
  7. Sell 5 Puts CAT, Buy 5 puts DOG.
  8. TheMan


  9. Not sure what selling March ITMs will do at this point.
    The Mar 57.5 call is going for $2.48, which means you've got basically no time decay so you're just going to eat commissions on that one. You could sell OTMs on the covered calls, but other than the Mar60, the premium is basically nothing.

    In my opinion, you'd be best served by liquidating now and taking your loss. Sure, it could crash tomorrow and make you a tidy sum, but that just re-enforces bad habits and that's just a market feint to sucker you in next time when you'll really get your ass handed to you.

    I think in most cases, a good rule of thumb is to sell the shortest term option that gives you premium/protection you desire and buy the longest term option that gives you the best combo of delta and theta decay.

    My $0.02

    PS: The 5-min CAT chart sure looks to be basing to break out to the upside this afternoon and make new highs rather than falling off the cliff.
  10. I bet you didn't set a stop loss and profit target at least mentally before you took this trade.

    You thought you'd trade cowboy style and said "Yeehaw! I'm gonna ride this sucker for as long as I can!"

    #10     Mar 9, 2010