Option Trading Articles: [ConservativeOptionStrategies] Re: Adjusting Your DITM Leap Put with Increasing Stock Price

Monday, March 1, 2010

[ConservativeOptionStrategies] Re: Adjusting Your DITM Leap Put with Increasing Stock Price

john there are no unique programs out there.....i've have seen some of the radioactivetrading program and yes what i've been doing for years is similar...from what i have seen with the radioactive is they get pretty complicated when it is so simple. nothing i do is unique....i've just put together a strategy/outline of what i do ......i like the protection that ditm puts give me....especially if there is a catastrophic event in the stock market...and i always know my maximum risk...drjoe

--- In ConservativeOptionStrategies@yahoogroups.com, John Hudgens <jdhudgens2000@...> wrote:
>
> There is a great deal of similarity in your plan to a program called radioactive trading
> Â
> www.radioactivetrading.com/seminars.asp
> Â
> I am not advocating their method,Â just pointing out there is a similar program .
>
>
> --- On Mon, 3/1/10, joe & leigh <gass20@...> wrote:
>
>
> From: joe & leigh <gass20@...>
> Subject: [ConservativeOptionStrategies] Adjusting Your DITM Leap Put with Increasing Stock Price
> To: ConservativeOptionStrategies@yahoogroups.com
> Date: Monday, March 1, 2010, 7:07 AM
>
>
> Â
>
>
>
> Adjusting Your DITM Leap Put with Increasing Stock Price
>
> The example below was done using option calculator from Ivolatility. com using IWM, (ETF), using IV=25%
>
> Starting data: Iwm = 62.8 date 2/27/2010
>
> Purchasing Jan12-70 strike leap put (696 dte) and selling 90 day covered calls for income.
>
> 696 dte â€" bto 70 leap put for 13.3
> net invested = 62.8 + 13.3 = 76.1
> at risk = 76.1 â€" 70 = 6.1 or 6.1/70 or 8.7%
>
> at covered call expiration stock increases to 70 same price as leap put strike
>
> most traders would think this is a bad scenario for someone with protective puts, ie. They feel if underlying increases they are losing money. Well let's see.
>
> 602 dte â€" stock at 70 â€" stc leap put all time value = 9.06 and then bto the 75 strike leap put at 12.10. you increased your invested by (12.10-9.06) = 3.04.
> your new net invested = 76.1 + 3.04 or 79.14 but look now
> at risk = 79.14 â€" 75 = 4.14 or 4.14/75 = 5.5%
>
> 512 dte â€" stock at 75 â€" stc leap put all time value = 8.96 and then
> bto the 80 strike leap put at 11.98. you increased your invested
> by (11.98-8.96) = 3.02.
> your new net invested = 79.14 + 3.02 or 82.16 but look now
> at risk = 82.16 â€" 80 = 2.16 or 2.16/80 = 2.7%
>
> 422 dte â€" stock at 80 â€" stc leap put all time value = 8.69
> bto the 85 strike leap put at 11.69. you increased your invested
> by (11.69-8.69) = 3.0
> your new net invested = 82.16 + 3.0 or 85.16 but look now
> at risk = 85.16 â€" 85 = 0.16 or 0.16/85 = 0.0019% essentially no risk in the position.
>
> 332 dte â€" stock at 85 â€" stc leap put all time value = 8.22
> bto the 90 strike leap put at 11.22. you increased your invested
> by (11.22-8.22) = 3.0
> your new net invested = 85.16 + 3.0 = 88.16 but look now
> at risk = 88.16 â€" 90 = minus 1.84. ie you have NO risk in this trade and you still have 332 days to continue selling covered calls and collecting premium knowing you can't lose money at all.
>
> I usually look to roll out the leap put to a further out leap with 1 year to expiration.
>
> As you can see owning a leap put with an increasing stock price is not a bad situation at all but a good one if you are selling premiums.
>
> drjoe
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