Naked put... eats like a mouse, sh!t like an elephant

can be re-phrased as:
So position becomes a CC if stock is above 480

 

No need to get anybody as I am after no body. But if you mean that you saw some people running to the bushes, no problem there. They will come out or die as the bushes are burning,and there won't be a place for anybody to hide in alive.

 

It's a simple collar. I was using the '09s to better illustrate the point. The term is more like 10.5 months. The yield above 480 is closer to 5%. Interest rates are low and this is a low risk position so 5% is a reasonable return here.

There's nothing mysterious about this. Collars are described in most option books or on the net. A risk free interest rate is factored into option pricing. Added to the call price, subtracted from put prices.

Today's approx. prices from yahoo
long 100s GOOG 444.60
short 1 jan '09 460C 62.00
long 1 jan. '09 450P 63.00

Like I said yields are very low.

 

Interest on (444.60+63-62)) at 5% is 19.49. The max return is 460-444.60-1, which is less than 19.49. So the above example is not good as it does not lead to a reward which is higher than the interest cost.

The other example fits the bill as the max reward is higher than interest cost.

 

It is what it is. Assuming an IV of 39.5%, the i rate factored in is less than 3%.

BTW, dividends must also be factored in.

Also, OP glad to hear that you are still ahead this year. And thanks for posting the trade. There's probably all kinds of lessons here.

 

I hope you got rid of these puts because TMA just went under.

After Hours $2.10 Change: -1.30 -38.24%

17 minutes ago Thornburg failure to meet margin call trigger cross-defaults - by Sue Chang
26 minutes ago Thornburg failure to meet margin call trigger cross-defaults - MarketWatch
32 minutes ago Thornburg default notice comes from JPMorgan: report - MarketWatch
33 minutes ago Thornburg Mortgage fails to meet $28 mln margin call: report - MarketWatch
33 minutes ago Thornburg margin call miss triggers cross-defaults: report - MarketWatch
50 minutes ago Thornburg Mortgage shares drop 43% to $1.96 in late trade - MarketWatch

 

Closed the position already at the time of posting this thread.

P.S. Those gambler DOTM put buyers are making a killing now. Even the 2.5 put "lottery ticket" is now ITM. This stock should be a case study of "fat tail" risk.

 

I have another BSC Mar 65 short put that is moving near ITM territory and under water. Would you close this?

 

What else have you sold naked puts on?

 

Well said. Better for him to confess now.