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Next Market Crash Stocks Accumulate LIst

Next Market Crash Stocks Accumulate LIst

Intrinsive Value Tracking

Showing posts with label How to adjust a long stock position. Show all posts
Showing posts with label How to adjust a long stock position. Show all posts

Sunday, August 01, 2010

How to adjust a long stock position

To create a trade that profits if stays in a range, and if Vol stays the same or drops.

Here’s the trade example.

  • I own 100 shares of PCP, currently trading at $107.79. (My price is $121.40)
  • +1 Sep $105 put.
  • +4 Sep $120 call.
  • -5 Sep $110 call.
The P&L looks like this after I added the options, below: Notice that this trade is ‘profitable’ in the range that I anticipate. If the underlying stays in the range as I predict, my trade that is currently around -$1,400 will be -$300. Then in Sep, I can put on a similar trade again as long as my predictions have not changed. I now have a limited risk trade that I can manage or stop out if PCP should rally hard. Synthetically, you’ve created a broken wing butterfly (long stock and long put is long call +1 $105call / –5 $110 call / +4 $120 call).
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