Hello Capablanca, I actually trade in both day trades and swing. The setups are very different with nothing to do with each other. Best of trading to you
Hello C, Thanks for your post and its a good question. If MIR doesn't act as I expect I am willing to exit even if it doesn't move at all. The reason for writing the options is that I am fading the movement and I am selling time premium. If the options can be sold at a fair to better than fair premium and I am going to hold the position for long enough I will want to gain some extra by writing the covered options. I don't have a set stop loss other than around the 2-3% loss amount I start to look for the exit door.
What would you do if your 2-3% stop on the short stock position is hit and immediately later the stock price falls again - all before the option expiry date? You would have covered your stock position but would be left with a naked put.. would you cover (or place stops) on the option position as well? If so, aren't you faced with a possible double loss (ie. buying both stock and options at higher prices than you had initially sold)? Once again, thanks for your time.
Hello C, Good question, I generally enter into and exit out of covered trades first through the option leg of it due to liquidity issues. I try to sell on the ask and buy the bid even with options. If a trade has gone against me over 2% I start looking to get out or at least look at it and see if I want to get out. I don't have a fast and hard rule on stop losses. Of course in a fast moving market it can get costly to try to get out of both a stock and the options.
Still holding the short swings BP CVX MIR SYNA I had some day trades SINA + 1056 CCU + 454 EXM +331 I scalped SOHU today while waiting for other trades SOHU + 321 I also closed out of ATVI but I had an extra buy order in that I closed for a small loss. so instead of the +908 it ended up being + 840 Still long UAUA covered + 2993 for the day / week + 10467 for the month + 49431 for the year
Actually I am sure people must be selling options and using the premiums collected to determine their stop loss. For example, you buy 100 x MIR @ 40 and sell a call strike 45 @ 0.60. You can then place a stop on the stock at 39.4 and if the move goes against your position, the worst scenario is that you end up break even (100 x MIR @ 40 - 100 x MIR @ 39.4 = 0.60 x 100 premium collected from the call). Obviously, you would have to analyse the volatility of said stock, as a 0.6 stop might be too tight and could leave you stopped out - the result being you end up with a naked call. Is this reasoning correct? Is it a viable covered call strategy? What other potential drawbacks does it have that I have not factored in? We should ask the gurus over at the option forum..
While I am aware of the break even point of a covered stock I don't use that price to make the choice for me. I try to let the market tell me what I should do. When I try to fix on a point it has been my experience that I lose focus on what the market is doing and start to spend too much time thinking about my orders.