Within the framework of commonly used options strategies. An enhanced indexing strategy, if you will. I could probably get closer to a zero cost collar at these skew levels but I want to tighten the sails up until December. A bit like bond laddering for duration management. I want a mildly rising long volatility exposure to a 16-18 90 day IV and expect CBOE skew of 140 after Aug. I hope I don't get PMs for managed fund services. This is just is a pilot program for a few months. I could just as well lower my equity allocation to my sleeping point, but it will eventually find it's way to a number of eclectic positions in no time.
May I ask what is the best way to hedge a long option position that has significant profit but still has a long way to expiration and I do not want to take profit yet or roll over to a higher strike option? I can buy a put but that is expensive or do a collar but that limits my upside so it might be better to sell and start over? Thanks and regards,
It depends what you are doing. In general, it's often better to sell and start over. You can sell part of your position.
Took a quick look at my account after your reply and based on my trades, you were right. Logically, I should be selling at the top and if I rolled to a higher price (which I did on a few occasions), it would be a losing trade. So, exit and wait for the options to get cheaper before reenter is the right call. Selling part of the position is something I should have done too. Thanks.
Unfortunately, you took away the two best ways to lighten up. Why would you not want to use those two strategies? They are the only ones that don't limit your upside.
Good comments. Well, I don't want to take profit yet because I thought there could still be more upside but I don't know how to protect from in case there is a down side. I tried rolling up so effectively taking profit. But in all the cases I rolled near stock peaks and since then all the roll ups went negative. I think taking part of it off the table is a good way to go. Are there any other good ways? Appreciate your advice.
Any thing you do will have a cost. It will either limit your upside or have the cost of paying the premium for a long options with the reverse delta. I really do feel in my experience, that the two you don't want to do, work the best to reduce risk but say in the game. Nothing wrong with taking small profits. The worst case would be watching the stock move reverse and lose your profit and replace that with a loss. The best case is you sell 10% at certain levels on the way up and you continue to make money. That way you feel comfortable staying with your thesis.
Robert, I appreciate your comments and coaching as the reason I asked was on quite a few occasions my profitable trades turned into losses because I did not do what you and drcha said. Make good sense. Thanks.