Option adjustment using inversion

Image result for adjustment

Beside using Rolling to perform repair or adjutsment , I added  another repair skill into my list. It is call inversion and good for naked put, call or strangle.

SOLD -1 VERTICAL INSY 100 16 SEP 16 15/14 PUT @.25 ISEMARK=15.92 IMPL VOL=63.24%
SOLD -1 INSY 100 16 SEP 16 14 PUT @.30 BATSMARK=16.024 IMPL VOL=65.19%
SOLD -1 INSY 100 16 SEP 16 14 CALL @1.00MARK=14.66 IMPL VOL=73.59%
  1. I put in a spread beginning of the month
  2. Close the buy leg to collect extra premium when price is up (I assume price will continue to go up)
  3. Price dropped when closer to expiry date (my assumption is wrong, time to adjust)
  4. Perform inversion (sell ITM call ) to reduce loss

If price drop between $14 to 15, total premium collected $1.55 minus of capital loss of $1 still collect $0.55 exclude assignment fee. Still profitable

If price stay below $14 then had reduced my loss by $1.55 breakeven at $13.45. Close the sell put leg at market close and leave sell call leg alone.

If price above $15 then my sell put is safe but my sell call leg will be assigned and leave sell put leg alone. Breakeven at $15.55

The purpose of the adjustment is to address the tested position on the spot and remove some uncertainty from the market movement.

Please note that this adjustment strategy is from http://www.tastytrade.com

17 Sep 2016 update : BTC at  $1.25 as don’t want to get assignment. P/L = 0.25 + 0.30 + 1.00 – 1.25 = $0.30. This adjustment was successful.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s