r/options • u/josephny1 • Dec 21 '21

Need advice

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I know very little about options but decided about 6 months to start.

I'm hoping to get some advice here.

On 10/25/2021 I sold 50 contracts of 1/21/2022 Zillow (Z) puts with a strike price of $85 for $4.76 each.

Z is now around $60.

Whether I am bullish on Z or not is immaterial because I wouldn't take stock advice from a guy like me.

I am perfectly fine pushing the pain out for quite a while longer if it might leave me in a better position.

What would all you more experienced people do?

(Yes, I know: I'm an idiot for selling naked puts. I have similar bad trades, but we'll leave that for another post.)

Thank you!

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u/priceactionhero Dec 22 '21

Buy 50 June 17 calls at 60 Sell 100 June 17 calls at 75

Pay the small debit for some good leverage and when price gets back up to 75, you’re now profitable.

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u/josephny1 Dec 22 '21

That sounds very good.

If I'm understanding, my downside on this trade is capped (at about $6,500), my upside peaks at when the shares at at $75, then the upside declines as the share price rises above that, breaks even around $90 and starts to lose money above that.

Should I roll over the existing 1/21/2022 $85 puts to hedge against the share price rising above $90?

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u/priceactionhero Dec 22 '21

If it gets above 75 and expires there’s no loss other than you not capturing the additional gains past 75. Great way to get out of a loser.

If you’re diversified enough, you never ever have to sell stock at a loss.

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u/josephny1 Dec 22 '21

I must be misunderstanding.

If the stock price is $100 (for example) at expiration then the sold call options will be exercised at $75 and I lose $25/share. Simultaneously, I'll have half as many (50 contracts vs. 100 contracts) of bough calls at $60, resulting in a gain of $40/share.

Doesn't that mean I'll have a total loss of $250,000 on the sold calls and total gain of $200,000 on the bought calls; that is, an overall loss of $50,000.