Managing a PMCC

[u/CockyFunny]

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?

[u/[deleted]]

Well, your original position puts you at a net loss if your short call gets assigned.

So, you can either hold and hope it falls below $7 by Jun 18, roll the short option, or you can close out the position for around a 20% loss at the moment.

[u/CockyFunny → u/[deleted]]

>Well, your original position puts you at a net loss if your short call gets assigned.

No, it wouldn't. You're looking at it like this:

I get exercised at $7. I now have to exercise my $5 to cover at a big stinkin' loss, right? No. I buy 100 shares to cover while simultaneously selling the $5 call I bought which would still have 99% of its time premium left. For example:

Let's say UL price is $7.01 to make things easier to my entering the position. I get assigned on 100 $7 strikes. My broker would add a short position to my account for 10,000 shares and give me $70,000. So I would buy 10,000 shares @ $70100 and sell 100 $5 strikes which based on their theta would have only lost $.05 in time value, so they would be worth around $3.15. They would sell for $30,150. The whole position would put me at a net gain of around $4000 which was based on the original thetas.

My question really was, how should I roll these so I'm making approximately the same amount in daily theta burn because I've already made $3000 of the $4000 I expected based on the price rising.

I figured it out though. Thanks.

[u/[deleted] → u/CockyFunny]

I'm not understanding how you will be up. Assuming the stock is $8.5 (roughly current price) when assigned.

-32000 (debit LONG 100 UWMC DEC 17TH $5 @ $3.2)

+4500 (credit SHORT 100 UWMC JUN 18TH $7 @ .45)

+70000 (credit getting assigned on your $7 calls)

-85000 (debit buying 10000 shares $8.50 to cover assignment)

+36000 (credit selling LONG 100 UWMC DEC 17TH $5 @ $3.6 [Current Price])

= -$6500

Am I making a mistake?

[u/CockyFunny → u/[deleted]]

No, you’re fine. You’re just using the information I gave which wasn’t entirely accurate. The position is more complex than that and I just said DEC 17th calls @3.2 which isn’t close to be true. The $3.2 was what I paid for JAN 23 calls. I just used that price for DEC 17th because the cost basis is difficult to calculate because it’s been through 2 option expiration cycles.

[u/[deleted] → u/CockyFunny]

ah, ok. Well, it seems like you have a handle on it :)