Managing delta on naked short put

Discussion in 'Options' started by a529612, Nov 8, 2007.

  1. Yeah but you are making a mistake there. $850 to close and you lock in the loss and move on. You have a $600 cost now and potential for losing even more than the $850 you would have lost had you got out now.

    I adjust when I can lock in a lower max loss than closing outright or I eat SOME of the profits for a chance at still making money but not to eat all profits and dig a hole which can still get deeper.

    Easier to get out and look for next position to open up in many cases.
     
    #11     Nov 9, 2007
  2. Gustaf

    Gustaf

    Thanks for the advices coach! Ill soak it in my dumb head :D
     
    #12     Nov 9, 2007
  3. I believe that in addition to earnings and pending FDA announcements to inflate IV that a sharp drop will also inflate IV, while a similar % rise in stock price will not affect IV as much. But the IV will settle down very quickly once the stock stops going down.
     
    #13     Nov 9, 2007
  4. Do you see any assignment risk with 5 pts ITM with 1 week to go? Still has quite a bit of TV left.
     
    #14     Nov 9, 2007
  5. You can adjust delta by shorting the equivalent shares of stock.
     
    #15     Nov 9, 2007
  6. I won't have to go "naked" if I have the equity to do that.
     
    #16     Nov 9, 2007
  7. "You can adjust delta by shorting the equivalent shares of stock."

    I'm confused on this statement. He is short a put and the stock is going down. How will shorting stock and watching that position go against you also have a positive impact on the delta of the put?
     
    #17     Nov 9, 2007
  8. Here are the positions:

    Short AAPL Nov 170 Put @ 1.8 (~25k open interest)

    Short AAPL Dec 170 Put @ 2.7 (~8500 open interest)

    How would you rate the assignment risk of these? I've been told as long as there's TV left, it doesn't make sense for the long to exercise. Any thoughts? Thanks!
     
    #18     Nov 10, 2007
  9. Short puts are long delta (make money when stock goes up), short stock is short delta. Each is a hedge against the other.

    Personally, I find trading shares against options to be a rather crude hedge. I prefer to manage risk by trading options against options, since options are risk management tools by design and you can set a point where you stop losing money altogether.
     
    #19     Nov 10, 2007
  10. Open interest for the November puts will drastically change on Monday my guess it will be in the 40,000's after Fridays huge volume so I don't think you will have to worry about early assignment
     
    #20     Nov 10, 2007