Tom's suggestion to sell the 3025 Put for 33 moves the break-even to 3055 if the P expires worthless. Trader can continue to sell puts against the underwater short ES position.
This is where I fall down. So you keep selling puts and selling puts and selling puts, as the underlying goes deeper and deeper and deeper underwater. But don't you eventually have to buy those puts back? Or what if your puts get exercised, you get "put to the position"? I am so lost on options.
I'm also lost at why you'd ever want to sell puts against a short position. His angle might be to make it up with premium as the outright rises, but once you're put the contracts you're even further in the hole. Calls are the solution. If the call goes ITM and you exercise the contracts should wash and you're left with whatever the delta (as in the loss from the short + the profit from the long) was at expiration.
Let's reset... I have sold the ES at 3022 and it is now trading at 3072. Short 1 lot future at 3022. He is now $2,500 in the hole. Expiry is Dec 20th, LTD is Dec 19th. Should I close it now or hold for a week or so ? What do you guys think ? So right now he would want to... Buy a put at 3072, and sell a call at 3132? OMG my brain hurts. The only reason I am engaging this thread is because it is in futures section. Else, I'd be far an away from it. And the "etrade" nick reminds me of my dreamy teen self...
Get out of this trade! A losing trade is not wine, it does not get better with time. Also, it's not something to be creative with, selling options, opening trade in a further month, and other creative ideas will get you into more troubles. You cut your loss. You analyze why you made such a trade go against you and why you were passive. Analyzing charts at ALL time highs is useless because highs bring higher highs. you're welcome
Overnight -- your reset is a great idea. But too, leave the multiplier behind -- it's best to keep things simple, and jump up to transaction-dollars once. (And, "last.") So: short at 3022 means the position is down $55 at 3077. Selling the Dec20 3025 put for $33 immediately cuts the loss more than half (BE to $3055). Selling every two weeks brings ~$36 (*and* raises the BE from 3055 to 3058). Selling every two weeks and raising the strike by ~prior premium brings in more! $12, then $14, then $20, if I recall correctly. That $46 total would take the BE point for the expiring future contract from $3022 to $3068. Not bad, eh? Any loss in the underlying results in a 1|1 decrease in the BE. (So an ES decrease to $3070 cuts the loss to $48.) A decrease of the (short) underlying below the (short) put creates a liability by that amount. (So, an ES plunge to $3000 leaves the future at +$22, and the 3025 strike put at -$25, for a net of -$3.)