My concern with calls right now is that I think there's a non-trivial chance the stock jumps reasonably quickly to $950 after the earnings call. Not a huge chance, but there's also the chance that it runs up next week before the earnings call. All in all, enough possible upside that I wouldn't want to be stuck with a sold vaguely close to the money call.
Anyway, I had just-a-little-OTM puts expiring this Friday that I "rolled" to next Friday. It looks like ETrade charges double the commission even when the buy-to-close and sell-to-open are put together on one limit order, so it seems like a "roll" is almost always worse than buying to close when the price is high-ish and selling to open when the price is low-ish, even during the same day (that is, I thought a single commission was the supposed benefit, but I don't seem to get that).
So I bought back around $6, which on the one hand feels like I left money on the table with expiration tomorrow, but on the other hand, as someone said upthread, next week's position was the one I wanted to be in more. Overall, this will be my least profitable week in a while, but the price was pretty flat and next week stands to be better than average... so long as there's not a serious case of sell the news. Fingers crossed.
Finally, with ETrade I don't seem to have as good a margin situation as some of you. For instance, if I try to sell a 725 put and buy a 700 put, it takes $72,500 margin (the full amount of the sold put). You guys seemed to be saying that represented "$25,000 of capital" when you talk about the return, but if it takes $72.5K margin, I'd consider that to consume $72.5K of capital. Is that just that I don't have portfolio margin? Or are different brokers different for this?
On the margin question - I have regular account margin, and when I opened a spread for this week expiration, it changed my margin amount by exactly $2500 per pair of contracts (725/700 credit put). So things I can think of
- make sure you've got margin on the account (I'm assuming yes
)- on the Fidelity trade ticket, I have the choice of making the trade as Cash or Margin. My default has shifted to margin, but I double check that.
- You might need to enter the trade on a single transaction ticket, rather than as two separate trades.
Your point about being very close OTM on calls (such as 905 with shares at 845) is well taken. If I were only selling calls, I would probably be sitting out completely. I definitely would not have opened only the 905 call.
But this experiment I've been running, that did me the favor of going deeply ITM immediately and, has given me the confidence to believe I can 'recover' that call should the shares go to $950 on Feb 5. That's "only" $50 ITM, and I've been rolling from deeper ITM than that.
The value to selling strangles rather than only 1 side, is that if the shares go to $950 next week, then that means the put I sold will be going to $0 rapidly, and I'll get to roll it up and/or out for a big credit, and watch that new position also start melting away. Those big credits provide me with even more risk protection, as I collected better than $50 on the 810/905 strangle; the position remains profitable all the way up to $955 (minus closing prices and stuff). Selling an extra put along the way might get another $10 in the same time frame.
The two legs create a delta neutral position at the open. It'll stay reasonably neutral while the shares are reasonably flat, and become increasingly directional as the shares go some direction (delta going down on 1 leg, while increasing on the other). This is one reason to roll the winning position towards the losing position - that will increase your delta on that leg, and get you back closer to neutral. @bxr140 has more on this idea in a post earlier today.
And on this particular position, assignment at $905 also isn't bad - I bought those share at $853, so the big premium plus the share improvement also yields an excellent result.
On the roll mechanics, it is definitely two trades that are put together (just like a spread is two trades on a single ticket) on a single ticket. So yes - two commissions. The advantages I see and use on the rolls:
- convenience.
- slippage. Because the two contracts execute together, I don't have moves between the two transactions (good or bad) that changes the outcome I was looking for. You are absolutely correct that you can get a better result if you can find a better close and then a better open time. I don't look for those because I'm trying to avoid market timing as much as possible (such as finding the better close/open situations).
- most importantly - I've been in a situation where I COULDN'T do a BTC/STO as two different transactions, and get where I wanted to get to. I didn't have enough cash in the account to do separate transactions. The roll transaction will use the proceeds from the open transaction to pay for the close transaction.
The thing I've noticed, at least at Fidelity - the default credit / debit price seems to be worst price from each side of the trade. I tend to change that to a little bit short of the midpoint, and it usually fills pretty quickly. So an 8.50 / 9.00 range - I might set the limit at 8.70. (Not advice of course). You might want to keep an eye on that dynamic.
