Protecting a profitable position while maximizing profit

Discussion in 'Options' started by Joel Reymont, Jan 24, 2007.

  1. Folks,

    I put two straddles on EBAY, March 27.5 and 30, between 10:34am and 10:50am when IV was 42-43% and stock price around 29.34.

    I specifically bought March since IV was about 10% lower compared to February. My understanding is that this would make the straddles cheaper and, hopefully, lessen the impact of IV drop-off after the earnings announcement.

    My risk on the combined position is roughly $20 but with the stock trading over $4 higher I, apparently, stand to make up to $400. Must be dumb luck since Ebay announced the share buyback of 2bn.

    My first thought is that I should sell the two straddles at the market tomorrow morning, right on opening. My second thought is that I could sell the two puts, protect myself with a MIT order on the calls and trail that order as the price goes up.

    Overall, I would prefer not to leave money on the table since I have 10 other straddle and strangle earnings plays that may be losers.

    What do you suggest as a strategy to maximize profit and protect from loss in this scenario?

    Thanks, Joel
     
  2. I forgot to mention that I cannot buy or sell shares since I don't have enough capital in my account. So gamma scalping is out of the question :-(.
     
  3. You can still gamma scalp, but use options instead of stock to balance your delta.
    daddy's boy
     
  4. Here is a quick suggestion. Sell 100 shares short for every 2 straddles. This will hedge some of your price risk. In the morning you can look to roll your calls up to 32.50 or 35 strikes depending on the 9:30 price
     
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  6. Sorry I didn't get the forgot to mention in time.

    Looks like there is huge resisance at $34. If it open above that I would roll into 35 call, below that I would take profits
     
  7. As Kevin Costner said in "Dances With Wolves", GOOD TRADE! :)

    If you prefer not to leave money on the table, close the position the first thing in the morning. In my modest experience, better option prices can often be had early as contraction often continues throughout the AM.

    I'd sell the appreciated calls, booking the gain. At a 1/2 a buck or so for the 30p, maybe hold it, probably close it. For the 10-15 cts you'll get for the 27-1/2p, I'd hold it as a lottery ticket. If you can get it, walk away with 3.50+ and a wish.

    I'd only roll the calls up if I was bullish going forward.
     
  8. Thank you guys for the advice and special thanks to FullyArticulate for his offline comments!

    What is the 3.50+?

    Thanks, Joel
     
  9. Can you post the prices you were filled at on the straddles? Just curious.
     
  10. 4 option pts = $400

    3.5+ = $350+
     
    #10     Jan 24, 2007