Yes, depends on the trade. 40-50% gain in a very short period of time, likely close. Some are more likely to close 30% gains than others in short period of time, depends on trading style.
I look at return per week per margin maintenance dollar. Generally looking for close to 2% or greater return per week in establishing a position, but with high probability of success. So if return per week drops to <1%, book profits and close. Between 1% and 1.3%, questionable. Above 1.3%, more likely to continue to hold.
So just hypothetical example; establish a trade; $2K in premium received from selling short puts and $10K maintenance to hold with 10 weeks until expiration. So if 4 weeks later, the stock price has improved, the maintenance requirement has dropped to $8K - if the remaining premium is <$480 I'd likely close, between $480-625, would depend on things like size of position, how market is acting, how close to the money the position is (probability of being OTM at expiration), whether I have other strikes/months in same company, etc., and above $625 would probably continue to hold. (with assumption that I can find another new position to replace existing with close to 2% return per week)
Real-world examples: I sold a few SWI Dec. 30 puts today for $1.35. Premium received was almost 30% of initial margin requirement, with expiration just over 16 weeks away - so just under 2% per week target. Probability of SWI remaining above 30 at Dec. expiration (pOTM) is currently ~75%, and I currently have a little under 20% downside protection. Will see how it works out.
I sold some SLCA Sept. 20 puts some weeks back for 55 cents. They are now 10/15 cents bid/ask. So my gain is ~70%, and at 15 cents ask, there is about 7% of current margin maintenance dollars remaining to gain with just over 3 weeks remaining. Current pOTM is ~92%, and I have no other SLCA exposure currently. If ask were to fall to 10 cents this week, I'd likely close. At 15 cents and with high pOTM, return is above 2% per week yet so I will hold. Others may just lock the gains at this point.
KJ |
