Dom/Dr. Joe,
Thanks for all your efforts in explaining the "sell short term PUT
against DITM LEAP PUT" strategy.
What I see here is the interpretation of gain/loss at a point of time.
Dom is trying to see that at the time of adjustment there is a realized
loss, while the same amount is considered by Dr. Joe as an investment as
the complete position is not closed out yet, and if he can exercise the
85 PUT he would be able to recover the money later by eventually looking
at the the max loss at that future time of exercise.
Let me recap,
> >
> > iwm 60.58 (not owned)
> >
> > sto may10 60 put @ 3.15
> > bto jan12 70 put @ (16.10)
> > net invested (12.95)
> >
> > iwm increases to 72 within days
ADJUSTMENT
> >
> > stc jan12 70 put @ 7.3
> > bto jan11 85 put @ (16.7)
Dom is calculating the realized gain/loss here.
> > > > STC Jan 2012 70 Put @ 7.3 ------------ -------> Loss =
16.1 - 7.3 = 8.80 pts.
> > > > May 2010 60 Put expires worthless. ÂÂ
------> Gain = 3.15 - 0.0 = 3.15 pts.
> > > > Your Net Loss = 5.65 pts.
============
In a way this is true, but Dr.'s argument is we are not done here as we
can roll and adjust.
as mentioned, after adjustment the
> >
> > new net invested is now (22.35) = (16.7)+(12.95) -7.3Â
I think it should be highlighted that you need to have extra cash aside
for the adjustment.
I will suggest we put overall investment, and the closing trade scenario
to get a better understanding.
Great discussion ......
-
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