neutralizing a trade by selling more vol/gamma? even if you are cutting your delta, it's only in a small window and now a snap back to the original stock price will be very painful.
I really wish you well in this trade as well as in all your trades! Sometime ago I came across a book where the author discusses a put writing plan. If I recall well, the book also discusses buying puts on indices to hedge.
I agree that can be beneficial if there is an overall market drop. But in my example, it is a stock specific drop. Less than 4% from my BE price.... thus far.
Am I correct that my main concern is, that the stock not rise above my $41 strike over the next 10 trading days? That as long as the stock remains below 41, I will own the stock and the naked call becomes a covered call? Am I correct that the pain begins if the stock rises to, or very close to $41 and I have to close the trade? But closing it up to 41 should not be too bad, as I picked up $2.05 in credit, and I'll have a week or two of theta helping out as well. Seems to me my main concern is a spike up in price. I can easily manage a slow drift up. Just have to be sure the buy back doesn't cost more than $2. On the other hand, I can close out the naked call trade now for a profit. And I'm keeping my finger on the trigger. But I agree the overall trade is a risky thing to do. I'm only doing it because the market is taking down most of the China sector I'm in. And I only need the stock to remain below 41 for another 10 trading days. And i don't see the sector snapping back that quickly. And I picked up a $2.05 credit cushion, which will be helpful, if i need to close the naked call trade,... in case the stock does head back to $41. Seems to me my main concern is a "spike" up. I can manage a slow drift up, via my $2.05 credit cushion, and a minor assist from theta. Or am I over looking something?
My understanding of what you do is that you aim for positive cash flow, and if one trade does not go as wished you use time/writing until you can get out? How often do you end up with a stock that gives you the need to manage it, and how long does it take before the breakeven to be reached? For your stock: How are the sales growth/shrinking doing? And how about earnings growth?
I'm really more of a big picture guy than just sales and earnings. I look at them, but more as part of a big picture. For example, I'm more likely to avoid a stock if I see 3 or 4 quarterly "trends", of rising inventory, a decrease in their R+D spending, a slow down of the company paying their bills on time, a slow down in customers paying the company what they are owed, depreciation way in excess of their cap ex spending, a trend of them selling off their assets (as that can make it look like they have plenty of cash, but it's not from earnings), ect...... I also look at various ratios, and compare them to similar companies in their sector. Things like debt levels, cash flow, employee productivity, ROA, ROE, ROI, ect..... I also look to see if there is excessive insider selling/buying, how heavily shorted the stock is, whether the dividend payout ratio is excessive relative to their earnings, if they have been meeting or missing earning estimates, ect..... What I'm really looking for, is the companies ability to recover, if its stock suffers a drop. If the overall picture concerns me, I tend to avoid the stock. If the various trends and ratios are a blend of positive and negative, then how flexible I am, depends on how strong and long the tech support looks, for the strike I'm considering. I don't automatically try to neutralize every stock that goes bad. Each situation gets evaluated based on it's owm merits. Some trades I'll keep working for a profit,... some I'll simply try to break even,... and some I'll quickly close for a loss. Generally speaking, I'll end up with a double digit % profit about 90% of the time. The real question is, how do I do during severe market downturns, like the 2008/2009 period. Not very well. Unfortunately, I was somewhat heavily invested in housing and bank related sectors back then. I got in at very good prices, but was not expecting the severity and duration of the drop in those sectors. Hence, I'm more diversified now, and even more picky about what I invest in, and the criteria I use to avoid or consider stocks for investment. Frankly, part of the reason I post my trades is, since everyone will know when I mess up, that potential embarrassment keeps me focused on investing via my criteria, and thus keeps me more disciplined. While investors are welcome to consider my trades for themselves, I'm not actually posting them for others to initiate. I'm posting for my benefit, to keep me focused and disciplined.
Gap up is a more appropriate word. Spike up is a better word when referring to IV. As you know, a gap up in NTES stock price will make it more expensive for me to close my naked call. If that is going to occur, hopefully it will happen in the last 4 weeks of the Jan trade. Not the next 2 weeks of Dec.
I closed this Dec trade today for $0.10. Trade was initiated about 3.5 - 4 weeks ago. Keeping 93% of the credit.
Today I closed the above $40 Naked call on $40 NTES for $0.95. Initial credit $2.05. Closing for $0.95. Profit $1.10 Thus, my new BE price on this deteriorating $41 naked put NTES trade is now $39.4 I will be monitoring and evaluating for another naked call at an even lower strike in the days to come. My goal is to lower my BE price even lower than the initial $38.45 above. That means I'll be considering a $35 or $37 naked call strike in the days to come, if the stock trades closer to $38. That will then become a covered call when my $41 naked NTES put, is put to me a week from friday. Technically, there seems to be some support in the $37 - $37.50 area.... per the 2 year chart. Hence the reason I closed the naked call when the stock traded at $37.50.