The beginning was here
here you go, what was expected and what happened, but deformed. In that post I wrote that I would like to observe the position in practice when the stock price approaches the break-even border of the sold strangle. Expectations met, but not as we would like. After the end of yesterday's session, it was announced that the company was not satisfied with its sales., closes several dozen of its stores and fires several thousand workers. The stock immediately fell by 14% on the postmarket and premarket and opened today with a gap.
I had a stop-loss order to hedge the strangle to open a short position in the stock at the break-even line 33,80. But since the price opened with a big gap, then I just removed this order. And now the situation on the diagram looks like this:
If you sell at the current price the number of shares corresponding to the options, then it will be just fixing a loss without any prospects, and if the share price also goes up, above 35,5, then the loss will increase even more:
That is why I wrote that you need to open so many options in a position., how many shares are you willing to have. For example, if you are ready to open a position on 300 Shares, then you have to buy / sell 3 option (well, or a combination -3+3), so that if a disaster strikes, would be ready to hold a comfortable number of shares on the account.
For example, now I see no way out of this situation to exit the position without loss. Can, certainly, roll, average, sell a large number of stakes, etc.. But this does not cancel the loss in the current position., and new positions should be considered as new, which are supposed to be getting another loss, so did the profits. I.e, taking it out now is akin to gambling, where you can lose a lot.
That's why, ready to accept after expiration without any problems 300 shares M, which will be at a price 33,80, approximately on 9% higher than the current price and this is not so much. On the other hand, if nothing is done now, then it is quite possible that before expiration the price will return to the break-even line, that is, this option is not excluded. But it is possible and will decrease even more, how lucky you are. If the price does not recover and shares appear on the account, then after expiration I will sell colas (Coated cola combination) plus receive dividends 4% per annum. And close the position, eventually, at breakeven, zero.
If it was systemic trading, put on stream, then no doubt I would just fix the loss and start other positions. But since this is a training position, artificial, then we must observe further, as it is useful for understanding the processes in practice. :)
I am also glad that THIS happened at the very beginning of the educational practice and in this regard, experience was gained.. But if THIS happened after a long period of luck, stay in euphoria, for example, in a year, two, when all vigilance would be lost and the illusion of one's own infallibility would be created and in this connection more and more money would be put at stake, then it would be a complete disaster, and a year or two of intensive trade down the drain ….:)
