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Coveredput

OPENING: ATVI COVERED PUTThis is a continuation of a trade that started as an earnings play iron fly (see post below). There are a couple of reasons I went this particular way, as opposed to attempting to continue to work the setup "as is." First, the March 17th 40 short call was deep in the money. Even assuming I could roll to improve that strike a bit, it would still be deep in the money. Deep in the money options are generally made up of a lot of intrinsic value, so you won't get that much time decay out of them. Secondly (and relatedly), you can't get much of a credit to roll a deep in the money short option because you're basically rolling from a mostly intrinsicly valued option to, well, a mostly intrinsically valued option, and so you're not picking up that much premium such that you'll receive a credit for a roll. Just to make sure, I checked to see whether I could get a credit to roll out to the April 21st 40 short call "as is" and receive a credit -- no dice. Alternatively, I looked at how much a strike improvement would cost to roll from the March 17th 40 to the April 21st 41 to see whether I could sell a short put vert against for a credit which would exceed the cost of the roll; I wasn't happy with where I'd have to setup the short put vert to do that (basically, I'd roll into an inverted iron condor setup; far less than ideal). As compared to a covered call: everything is "upside down" with a covered put: (a) you're looking to increase your cost basis in your short shares by selling puts against them; (b) if price finishes below your short by at expiry, your short shares get called away; and (c) you work to roll the short put out for duration and credit, attempting to keep it clear of current price action until you can exit the whole setup profitably. Here's I'm just looking to mitigate loss from the original broken trade or, ideally, get back to scratch.
NASDAQ:ATVI
by NaughtyPines
7