Hi Fairly new to shorting puts. typically I've been shorting the puts on Monday that expire the coming Friday, and only rolling if its at or near the strike price. I'll always roll to the following Friday. On 11/6 I shorted a put for .29 at a strike of 55.5 with an expiration of 11/10. The stock was trading around 57 and change. Today I looked and the stock is being tested and is trading right at 55. I looked because I was curious at rolling the put to a 11/17 expiration still at the same strike price. The amount of premium I could get for this roll is 1.94. Typically when I roll I look for Premium = strike(55.5) * .2(margin) * .01 (1% premium goal) which for this scenario is .11 credit. Any advice on how you typically handle a scenario like that?
As with everything in options it depends on whether you want more risk or reward in your strategy. Right now you could get a fatter juicier premium with the roll but that is because your short strike would be right there where the underlying price is so it is more likely to end up ITM at expiration (since you are rolling into the ATM) One thing you could look at is to try and roll but to an OTM put (lower strike) even if the credit for the roll is less so you would be getting less reward but you would also cut down your risk somewhat (since your short strike would be OTM) and have a higher probability of profit (but less premium collected).
It has earnings on 11/16 and they are important as they will forecast holiday sales. Independent of your current position, are you willing to be short puts into that? It's not a rhetorical question.
Premiums are fat because earnings release next week. If willing to hold short puts through ER, use a spread order to try to get a better fill if rolling to next week. Roll strike down if you want more downside protection.
Holding a single naked leg going into earnings seems like it may be beyond your pay grade as an admitted newbie. A slightly less risky proposition would be to short both sides as then you'd only lose one way and could roll up the untested side. Either way, a massive amount of the tiny premium you've earned selling puts could get wiped away with one poor earnings play.
He/she would still have unlimited risk (well, down to zero on the put side) so, while definitely an improvement, I think that for an earnings play he/she would be better off buying cheap wings to define the risk either on one side or on both sides, especially if the account is not very large.
Let me give you some comments from one new options trader to another: 1. You are essentially making a directional bet, and since you are trading around earning, you also placed a bet on volatility. 2. Looks like the bet is not working out, so the most important thing for you to do is figuring out why? Was it underlying or volatility, or both. Is your judgement when placing the bet now wrong or still correct? If you think your judgement is still correct, maybe you should not do any thing, just stay put. 3. If your judgement is now wrong, then there are several things you can do: Get out and live to trade another day; roll down, up or out; convert to a spread; buy protection.... My own experience? Roll-out often did not turn out well. Usually, getting out at the first indication of a wrong bet turned out to be the best strategy for me. If you realize that roll out is actually two different trades you will understand what I am saying. Roll out only make sense if, independent of the first trade, the second trade is a winning trade that you want to make anyway. Good luck.