JMO, but the idea of adjusting positions is more micro-managing than investing. To be sure, some investors have bona-fide reasons to adjust positions (including margin calls), but once I put on a position and hedge it with options, I generally let it run to expiration.
For alot of reasons.
I don't view putting on a position as a casual event. I take whatever time I need to understand what I'm doing and why. If it made sense to sell options against the underlying stock because the options were trading at a high volatility, then it's an exercise in transferring net liquidating value from your portfolio to your broker, on-line or otherwise, when you adjust a position, particularly if you buy the position in at the same high volatility. The only reason to buy a position back, IMO is because the volatility has collapsed and you have realized the additional gain resulting from the decline in volatility.
The whole reason for using options as a hedge, however you do it, is to realize the additional benefit of time working on your side. When you hedge by buying options with a low volatility, if volatility explodes upwards, you may rightfully want to close the position by selling the options at the higher volatility (and higher price implied by the volatility).
I think most individuals unfortunately buy or sell options with no regard to their volatilities and how that single factor affects their pricing.
I'm no authority on the matter of options, but I have traded tens of thousands of contracts over the years. I also recognize that there are several individuals on this thread who are more adept than me at the application of complex options strategies. I'm guessing their recommendation would also be to thoroughly understand what you are doing and why before you put capital at risk. You'll have a much better chance of achieving your investment goal.
I enjoy your contributions to this thread.
Best regards and good investing,
Mark A. Peterson |
