Sure, but usually when vola rises your underlying "lands" out of the money. Plus you'll probably also scare your pants off and make new decisions based on the risen vola. You are referring to classical delta hedging, something the market is already keen on doing. OP will profit from it only if he's better at delta hedging than the market. Is he ? Based on his first post, No. What does interest rate have to do with the profitability of this strategy ? Why do you guys still think that there somehow exists a golden goose strategy that requires zero effort and nets a sea full of coins ? You do realize that someone literally has to give you the money if u want to profit. Now, why would he do that ?
The reason was that I own NIO and had been selling covered calls, and rolling them up as needed. However the stock shot up and I did not want to sell the stock. Instead I decided to roll up at a loss, and to compensate for the loss sold the put. The idea is that I am ok selling the stock at a higher price if the stock continues to go up. And if it does not go up, then I'd adjust the puts while keeping the shares I currently own.
Why lower volatility? It's also about time, right? And that's the main idea that I was thinking. I have straddle at say 13, and if the stock moves up, I'd move the straddle up to 14 (same expiration date). If moving up does not cost me much then I should be ok? Also note that I am ok selling my stocks, but would like to sell it for as high as possible. So I'd keep my straddle lower than the stock price to make sure that I make money on my put, while selling my currently owned shares at expiry (or close that transaction for a cost much lower than that I get today).
Thanks! But as I posted in my response on one of the posts above, I had sold a covered call at strike price 9, and with the stock shooting up I was trying to avoid selling it at 9 or taking a loss on the transaction. I did have some additional funds in the account, and don't necessarily need to keep adjusting. But the initial adjustment allows me to be able to sell the stock at 13 instead of 9 (assuming it stays above 13 at expiration). However after I did the transaction I realized that everytime I moved the strike price of the straddle further up, I was getting credit. I do realize that also meant more capital for covering the sold put, but still that seemed surprising to me. So I was curious why this is not one of the known strategies.
Sorry for the late responses here. I am new not just to options but to elite trader as well. I didn't realize I wasn't getting email notifications for responses.
So you are selling strangles and not straddles. I presume you are not selling ITM Puts. You should have an Idea how high the stock will move and then choose a strike accordingly. If I'm certain the stock is going to move up, i wouldn't sell on the Call Side. You can sell a put and buy a call debit spread, thus the put will expire worthless but it will finance your call debit spread. Once the stock moves up you benefit from the increase in value of the call debit spread, stock move and the value decrease of the put. Google Jade Lizard
I am new to options but not as new as you. Let me share with you what I learned from ET: There are two approaches to covered calls: 1. Covered call, trade as a combination, meaning you open, close your calls and underlying as a single trade. 2. Covered call, but you have no intention of selling the underlying. You want to "generate" free income. If your approach is 1, you trade traditional covered calls. If your approach is 2, you are essentially writing naked calls. In doing 2, you are holding the underlying because you believe it is a stock you want to own. Yet you are writing calls betting it would stay the same or drop? Your hunch was correct, it is a stock you want to keep. The stock moved up nicely and your calls are now at a loss. Because you wanted to keep the stock, you are forced to sell at a loss. To add insult to injury, you closed it out at a loss and wrote another calls another bearish bet. Us newbie think it is a "repair" but look at it carefully, you have just increase your risks. If the underlying keeps going up, your losses will grow. So you wrote a put. At least now you placed a bet consistent with holding the underlying long term. My humble suggestion is next time you put on a covered call, ask yourself the same question above which @Maverick74 taught me when I first joined ET. The most important questions for you: What is my current opinion of the underlying and how do I minimize my future risks. Asking us you are asking our opinion of the underlying because my action depends on that question. Have a good day.
When i'm talking about vola, i'm always talking about price AND time. I really don't understand the point (edge) in your strategy. If u r selling a straddle then u r benefiting from low price movements at the expense of large movements. What else is there to think of ? Or do you think there is some sort or arb opportunity in your idea when you keep on rebalancing ? No, there's not.