Wednesday, May 17, 2023

I bought a put, it's up 80%, expires in 4 months...sell it or hold longer?

An option newcomer asked the question in the above title.  My answer:

In my strategy, I sellputsthencalls - I sell to open cash secured puts (occasionally naked puts) & then covered calls.  Recently, I uncharacteristically did buy a call to open.  And it did force me to consider your above question after you bought a put that quickly made you 80%.  I bought a call versus XLE, the energy ETF.  In my sellputsthencalls strategy versus XLE, I made 2 critical errors in which I lost money.  So I bought a long term XLE call to catch up, & importantly, to protect my sellputsthencalls strategy against strong XLE appreciation.  I was bullish on oil & the energy stocks.  The XLE call became profitable, but not enough to cover my earlier loss.  But time until expiration was running out.  So I sold the XLE call well before expiration to capture the available profit, even though I was bullish on XLE.  (You're never wrong to take a profit.)  Continuing with my bullishness, I then bought another XLE call with an expiration date that was 1 year longer.  About 10 months before that call's expiration, all of my loss from the 2 critical errors was covered, plus I was able to grab a few more dollars beyond my loss.  So I sold my call & put it behind me.  


3 comments:

  1. Thanks for the blog! Reading through it now. Carl/Boston

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  3. Carl, this is one time in which I BOUGHT a call TO OPEN. It worked. But I prefer to not pay option premiums. I prefer to receive option premiums. Of course, as I repair/roll my sold options, I BUY calls TO CLOSE.

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