Question for Ox and others regarding repair of a NP. I am planning to put a large part of my margin into writing puts for developing income. I have calculated and tested way OTM strikes on conservative stocks, and I'm confident in possibilities. However, I haven't fully thought through repair in case of a major correction, and I'd like some ideas. Because I will only be writing way OTM, I will be setting a mental stop of closing the trade if price approaches ITM. However, I hate to pull the plug too soon on an otherwise good company. I hear and read much about possibilities of early assignment. But realistically, as an individual trading 10-20 contracts, what are the odds of that if price goes slightly ITM? I know, I know...the old rule about not writing on a stock you wouldn't want to own. But the fact is, I don't want to own ANY stock in this particular account.
In thinking this through myself, the solution would seem to be to roll out or down at ATM if the reason for the trade is still solid. This would keep me in a credit position, keep me with the company, and avoid any possibility of assignment. Is this a logical approach?
Also, can I assume that open interest in the option may play a role in odds of early assignment? If I am in a thinly traded option, could that increase the odds?
And finally, if for some reason I should get assignment, and if my margin simply won't handle it without liquidating other trades, what's the final option? Just intruct my broker to dump the stock at loss?
All comments would be much appreciated.
-David |
