Is thats what happening here?? Guy won't place a stop on his short call,but will overhedge by 100 percent after TSLA runs up 80 points?
It is like a covered call, but with an order to buy the stock when it moves up to a stop instead of already owning the stock. The option that would be sold was Apr 3 tsla $840c $41.95 Yes my first post had the incorrect date and mixed prices. Yes I would buy 100 shares of the stock at $830. I would have a stop order in place at $830.(does not protect against gap ups). If my short call gets exercised at $840 I will have bought the stock at a lower price if possible. Break even - buy 100 shares of stock at $881. Sell due to exercise at $840. Loss on stock equals income from selling call. Why is this not correct? No intention of trying to buy call to close position.
Why would you buy 100 shares at 830??? You are flipping from a naked short 840 call at 750 to a naked short 840 put at 830??? Without looking at a screen,you are flipping from a short 25 delta to a long 50 delta if the stock runs up to 830.. Makes no sense.. Your breakeven analysis is very confusing.How are you buying 100 shares of stock at 881?? I yhink you mean you breakeven on the naked short call at 881.95.. FWIW,you will blow up
Thank you for your patience trying to understand this. I would have a buy order on the actual stock at 830 for 100 stocks.(stop order) If my short option call gets exercised at 840 I will own the stock that I now have to sell. The naked short call break even is the same as getting exercised and buying the stock. If I buy the stocks at 881 I have to sell at 840 for a loss of $41 per share which is the same as I sold the call option. It is a covered call, but instead of owning the stock I plan to buy it if necessary below the short call strike price. No downside risk as I do not own the stock. Try to avoid upside risk of naked short call with order to buy stock if you approach strike price. thanks
Again, your $ risk is in gap up (your buy stop gets filled at $860, e.g) or quick gap down after you’ve already purchased the shares (TSLA inches against you, your buy stop triggers at $830 as intended, then drops overnight to 700). It’s TSLA — the reason you’re getting that kind of premium on your short call is because it CAN move a lot very quickly. I get what you’re trying to do, I just think you’re underestimating the volatility risk behind it.