Long 50 NVDA Dec 7.50 Puts @ 1.50 (avg) Sold to Open 50 NVDA Dec 10 Calls @ .65 (avg) * This is a synthetic hedge for my long 5K NVDA position. I spent a total of .85 to hedge my long equity position. This is a good strategy if you fell that NVDA will not trade above $10 thru Dec. since the premium I received on the short call lessens my long hedge expense (long put).
Seanote, Nvidia trade is confusing. Long at 12.40 less .65 for call plus 1.50 for put = 13.25 cost to be called away at 10. So you think stock stays below 10 why not sellout the position at a loss? Or have you changed from net long to synthetic short for purposes of having a bullet? Good journal
I still plan on holding this stock long term and don't want to lock in a loss. I think NVDA will trade between $10 (optimistic side) downwards to the $6 range. This synthetic short works best with that type of trading range while eventually lowering my cost basis down from 12.40 assuming I correct about the trading range of NVDA thru Dec. expiration.
Merrill has announced they are going to reduce their trading in Nasdaq stocks from 10,000 to 2400. A lot of these are pink slip and penny stocks. Maybe this will help your BIg Bang Seagate.
I'm studying this hedge but I'm not sure I like it. We are deeply oversold and this name is totally washed out. Vol's are high and you are paying through the nose for ATM puts that give you a total of $6.65 of protection. Why not sell a backspread instead. Sell 50 Dec 7.5 puts, buy 100 Dec 5 puts. For a .30 credit, you are protected below 5, you are exposed from 7.2 to 5 but you keep all the upside if we get a rally. I'm not saying it's better necessarily, depends on what you want to do, but I like keeping the upside, plus you have the opportunity to double up if you want if it drops below 7.50.
I don't quite undestand your logic. If I sell 50 Dec 7.5 puts (I'm long 5000 NVDA @ 12.40) and NVDA declines below 7.5 like I think it will short-term, then I risk the chance of being assigned and having to deliver my shares at 7.5 locking in a 5 point loss. Buy the Dec 5 puts doesn't do me any good if NVDA trades between 5 - 7.5 which is very likely over the next couple months. My option strategy is based off of my analysis that NVDA will trade in the 7.5- 5 range until Dec. expiration.
You misunderstood me. If you sell puts and are assigned, you will have to buy the stock. That means you get the chance to double up , possibly at a discount due to the credit. Anyway, it's an interesting analytical problem.