There is a fifth scenario which I would recommend.
The first thing I always look at in these "married put" scenarios is what
the corresponding call is selling at. On Friday the june 75 call was bid at
around $0.27 so if you do anything here you are basically giving away that
$0.27. you are completely hedged here so another alternative is for you to
sell the covered call for that $0.27 and just wait until june expiration. At
that point you can change your mind about things or just let the options all
be exercised and you would then net the difference between your original
cost basis and $72.40 (or $72.67 if you also sell the calls here).
My guess is that your net cost basis really should be the determining factor
here.
Your cost basis should be whatever you paid for RIG less the cost of the put
(when you paid $2.60). so say your original cost basis is something like
$50. If you exercise your puts (which is the same time as simultaneously
closing the puts and liquidating your stock) the sale price will be $72.40
(the 75 strike less the put debit paid). So in this example you net $22.40
of which you'd then have long term capital gain consequences. However if
you also sell those 75 calls you would net the extra $0.27 as well.
So as to your scenarios:
- Scenario #1 is safe but it relinquishes the $0.27 call that you could sell
- #2 would be very risky because if RIG rallies all the value of your puts
would quickly evaporate. You'd be much better liquidating and buying cheaper
puts closer to the money and/or of longer duration if you still want to play
the downside
- #3 is essentially the same as #2 with the risk being that RIG continues to
fall and your hedge would be gone; in this case just buy a cheap call nearer
to the money and/or out in time
- #4 makes no sense since you would be giving the market maker the value of
the 75 call for free and probably be paying the extra bid/ask spread to
execute it.
As I suggest, if these are your scenarios, I would go with my #5 (sell the
june 75 calls twice) and then if you want to play direction on the stock buy
either some cheaper puts or calls
-----Original Message-----
From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
Behalf Of chickbull
Sent: Sunday, May 23, 2010 9:59 AM
To: OptionClub@yahoogroups.com
Subject: Re: [TheOptionClub.com] RIG Trade
These are what I can do in my IRA. I have no idea waht your idea requires.
Of course I can research it.
"create a put condor, which would be basically a free trade, then wait till
expiration with possibility to make more $$$."
Level Allows you to place
0 Covered Calls
Covered Puts
Buy-Writes
Unwinds
Covered Roll-outs
1 All of Level 0 plus:
Long Calls
Long Puts
Long Straddles
Long Combinations
Long Strangles
Cash Secured Equity Puts
--- In OptionClub@yahoogroups.com, rvd <rvdidit@...> wrote:
>
> I had RIG also, but I just sold it.
> It had a profit but it was an underperformer compared to all the hype of
what a great stock it was.
>
> If your Shwab commissions on options are low, you could put on a ratio
> and create a put condor, which would be basically a free trade, then wait
till expiration with possibility to make more $$$.
>
> Ross
> --- On Sat, 5/22/10, chickbull <rdconsulter@...> wrote:
>
> From: chickbull <rdconsulter@...>
> Subject: [TheOptionClub.com] RIG Trade
> To: OptionClub@yahoogroups.com
> Date: Saturday, May 22, 2010, 9:00 AM
>
> New to this board and I have only traded covered calls and protective puts
on ocassion. You would consider me a beginner although age 76 retired and in
the market over 45 years. My accounts are at schwab and have Level 1 option
trading. I'm sure I can learn something from you all and hopefully give
something back. Here's a trade I'd appreciate any comments on.
>
> I have owned in my IRA, Transocean -RIG for several years and before that
Global Marine for many years, which merged with RIG and how I ended up with
RIG. Of course, everybody knows RIG now with the mess created in GOM.
>
> I bought 2 june 75 put contracts on my long RIG 200 shares. The puts are
worth $15.95 each now. The stock is at $59.24. I bought the puts at 2.60. So
my choices are:
>
> 1. Hold till expiration and excercise for $75 at expiration.
> 2. Sell only the stock now and continue to hold puts for futher
appreciation or depeciation.
> 3. Sell only the puts now and hold the stock.
> 4. Sell both stock and puts now.
>
> With so much volatility and uncertsinty and having a more conservative
approach, I'm inclined to do #4 and take the $75 now.
>
> What do you all think?
> Regards,
>
> Ron
>
>
>
>
>
>
>
> ------------------------------------
>
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materials from TheOptionClub should be considered a recommendation to buy or
sell a security or to provide investment, legal or tax advice. All
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in TheOptionClub have varying backgrounds and degrees of experience in
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Hey, thanks for the information. your post s are informative and useful.
ReplyDeleteSuratwwala IPO