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Strategies & Market Trends : Calls and Puts for Income -- Ignore unavailable to you. Want to Upgrade?

To: Delfino R Zavala who wrote (5765)	8/27/2013 6:11:32 PM
From: Bridge Player	1 Recommendation Recommended By Dale Baker Respond to of 5891

Yes. 80% of the max profit potential realized on a short uncovered option? Bye-bye. Don't care how much of the time is left. It is out-the-door time. The next trade will take care of itself. IMO.

To: Delfino R Zavala who wrote (5765)	8/27/2013 8:47:03 PM
From: Bocor	3 Recommendations Recommended By Jim P. TheNoBoB Truedarkblue Respond to of 5891

Delfino, Yes, 80% is a good rule of thumb, although each trade is different. If you are holding a strike price where the stock has run and run, like I had FB in August @ 26, I had NO reason to pay the commission to close it, unless I needed the money for another trade which I didn't. A good example of closing when you can is my closing V, DE and JOY last week for approx. 80%. Look at today...I entered my V 160's again, and don't have to worry about JOY's earnings tomorrow. I had the DE 77.5's, and frankly as it ran north last week, I was thrilled to get out. It's all about the small profits that add up to a decent monthly income. Sometimes I even take 50% if it's a 2-3 day turnaround. If you are underwater, meaning you are under your strike price and do not want to own the stock, rolling out a month is for me the best answer. Sometimes I roll out 2 or even 3 months. It all will come with experience. Good luck!

To: Delfino R Zavala who wrote (5765)	8/27/2013 11:58:15 PM
From: TheNoBoB	1 Recommendation Recommended By Bocor Respond to of 5891

You'll probably get a different answer from every trader, but I will say my own methods are not too different from the comments made by Bocor. Time has a lot to do with it. I'll accept a smaller percentage if there's a lot of time left, so a trade that's achieved, say, 60% of the full profit in a few days would be considered for closing, where one with a week to go may not at 80%. On the Options Strategies thread, I recently described a trade that had much of the elements mentioned by Bocor. I rolled it out while slightly underwater, but a bounce 10 days later delivered 72% of the possible remaining profit with 28 days to go. I nearly broke the sound barrier rushing to get out of that one :) A friend uses a simpler system to decide if an exit is prudent. He simply asks himself if he'd enter the trade now at the current prices. If it's not an entry candidate, it's not a hold candidate either. There's plenty of fish in the ocean (although admittedly, like fishing, sometimes you can go awhile without catching anything).

To: Delfino R Zavala who wrote (5765)	8/28/2013 9:30:47 PM
From: Bearcatbob	Respond to of 5891

Delfino, One criteria I use is if the money tied up in a trade can be used to generate more money than it takes to close. Say you have a share that soars in value that you had covered with a call. If you can close the trade for less money than you can make with the freed up money - with commissions - I would likely do it. Similarly, if you have a short put on the stock goes up you can close the put and free up the money for another trade. To me it is all about making your money work. When a trade becomes dead money - it is IMO time to put the money back to work. Bob

To: Delfino R Zavala who wrote (5765)	8/28/2013 9:44:30 PM
From: Keith J	Read Replies (2) \| Respond to of 5891

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