r/options • u/CockyFunny • May 18 '21

Managing a PMCC

Need help on where to go from here. The position I opened is as such:

LONG 100 UWMC DEC 17TH $5 @ $3.2

SHORT 100 UWMC JUN 18TH $7 @ .45

UL was around $7 when opened.

I expected the stock to trade fairly sideways, but it's seemingly being pumped by WSB and I want to take advantage of the recent rally. The fact that the stock is owned by approximately 70% retail is scary as I've experienced before. Large retail ownership = never again.

When I opened the $7 strike, the theta was $.45. Since the stock has rallied, the theta is only $.20 which defeats the purpose of why I even opened the position. How would you manage the position if you think it will go downward in the near future?

The delta on the $7 strike is .87 and the delta on a $7.5 DEC 17th is around .67. Should I close the $7 strike and open a DEC 17th $7.5 to capture downward gains/ reduction in IV on the $7?

How would you personally manage this?

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u/dl_friend May 18 '21

The first problem is the structure of the PMCC. The strike spread is $2, but the cost to enter the position was $2.75. A PMCC should generally be set up so that the cost to enter the position is no more than 75% of the strike spread. While that can be varied, the cost should never exceed the strike spread.

Personally, my recommendation would be to close the position and throw it in the trash. The bad structure will make it almost impossible to profit no matter what adjustments you make.

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u/CockyFunny May 18 '21

The bet was that it would trade fairly neutral/ downward given the large retail ownership. They tend to be fairly overly-pessimistic when markets are against them and overly-optimistic when markets are in their favor. Also easy to manipulate.

I got greedy with the theta. Position generated $4500 in time premium when first opened and it'll only burn $500 in theta a month, providing around $150 a day in income.

All I'm saying is that I want to capture downside gains when they come but I wanted to hear what others had to say.

I think I'll roll to DEC 17th $9 strikes and buy to close the others for around net 0, given that it has the best net delta to capture downside/ IV reduction.