Maximize exit with call/puts?

[Runarbt]

Just want to check if my thoughts are correct.. or if I am digging myself a big 'ole hole..

Say I have 1500 shares which I want to exit at $1000 a share- but I want to Maximize GAINS..

($1000 is WAY to early an exit, but an example..and because I have option prices available to play with.
My exit strategy will be similar, but at SP 2000 - and options at $4000.. think it will be comparable %-wise?)

Either I can put in a limit sell order at $1000 - which will net me $1.500.000
OR
I can sell 15x $1000 2022 call options will net me about $150.000 ($10k each)
AND
Then, to further increase my gain since I expect the calls to be called away at a SP above +$1000, I can use these funds, and sell 3x $1000 2022 put options - which will net me about $200.000 ($68k each)(call options 150k put options 200k = 350k total in premiums)


When (not IF ) SP in two years are above $1000 - this will happen:
My shares will be called away and I will get paid $1.500.000, and I will net an extra $350.000 = A total of $1.850.000

OR (well...I guess nothing is 100% certain)
If SP is below $1000 - I keep my shares, but will pay $300.000 for an extra 300 shares, and I keep $50.000 in cash.


To me this - this seem like a win-win, if I anyways did plan to sell at $1000?

Either
-I get to sell at my price target at $1000 a share and get an extra $350.000 bonus
OR
-no sales, but I gain 300 shares and $50k bonus

What am I missing? This to me seem too good to be true?

Sure - I will miss on any upside above $1233.. but compared to a quick sale at first SP $1000, I will gain a 23% cash bonus.. or a 20% share increase and a $50k cash bonus compared If I just HODL and waited for my $1000 exit?

 

[Runarbt]

Well... I guess there is no need to get too fancy?

Just sell the call options, net 150k
Buy 375 shares.. sell another 3 call option..30k
Buy 75shares - sell 1call option 10k
Buy 25 shares..

Will net me 475 extra shares - (400 pre-sold at $1000) = $475.000 (31.667%) instead of $350.000 (23%) if messing with put options..

So either 31.667% extra cash, or holding increases with 31.667% and I can do it all over again, only 31.667% more profitable. ;-)

 

[adiggs]

Well... I guess there is no need to get too fancy?

Just sell the call options, net 150k
Buy 375 shares.. sell another 3 call option..30k
Buy 75shares - sell 1call option 10k
Buy 25 shares..

Will net me 475 extra shares - (400 pre-sold at $1000) = $475.000 (31.667%) instead of $350.000 (23%) if messing with put options..

So either 31.667% extra cash, or holding increases with 31.667% and I can do it all over again, only 31.667% more profitable. ;-)

I'm doing something similar with some covered calls, and for some of the same reasons.

One liability to be aware of.... using your example of a $1000 strike, if the share price goes up to $1000 'quickly' and then stays above $1000, you'll be sitting on those shares until expiration. You'll have the up front cash immediately, and you will 'earn' all of the share price increase to the 1000 strike price.

But then, you'll be waiting for the expiration to arrive before you actually make the sale. This can be valuable by enabling you to pick a year when you hope to be assigned, so that the taxes happen in that year. It can be a disadvantage in that you might be 1 year into the 2 year option (or whatever time period you're working with) and be past the strike. You'll then have 'dead' shares for the next year while you wait for expiration.


One strong recommendation (IS ADVICE) ; if you haven't previously traded options (buying or selling), then I commend the educational material at Free Beginner Options Trading Course from Option Alpha. I personally consider all 3 tracks to be a minimal education in options terminology and behavior. Even if the trade you're contemplating is as much as you're wanting to pursue.

And yes - I've "pre-sold" some shares as well, and taken on that risk of 'dead' money until the expiration arrives. I also like the significant cash that arrives at the beginning.


(There are also techniques for managing the position so you don't end up selling the shares; the outcomes aren't only BeAssigned or ExpireWorthless, though those two outcomes are a good starting point - those two are always available as outcomes).

 

[adiggs]

Well... I guess there is no need to get too fancy?

Just sell the call options, net 150k
Buy 375 shares.. sell another 3 call option..30k
Buy 75shares - sell 1call option 10k
Buy 25 shares..

Will net me 475 extra shares - (400 pre-sold at $1000) = $475.000 (31.667%) instead of $350.000 (23%) if messing with put options..

So either 31.667% extra cash, or holding increases with 31.667% and I can do it all over again, only 31.667% more profitable. ;-)

One error I think I see in this example - you don't get the $350k or $475k. You're spending that buying shares.

So you DO get the incremental 475 shares, with 1400 of them committed until the option expiration date (leading to the issue I mentioned in my other response). But you've spent the option premium you collected buying those incremental shares. There will be some amount of residual cash at the end - presumably less than 1 share worth of cash . A completely reasonable thing to do (MHO), but you can't have both (the shares purchased with the $475k AND the 475 incremental shares).

And you can go somewhere in between. Buy 300 incremental shares, sell 3 more calls, and sit on that residual cash for whatever you'd like to do with it (for example).

 

[Runarbt]

One error I think I see in this example - you don't get the $350k or $475k. You're spending that buying shares.

So you DO get the incremental 475 shares, with 1400 of them committed until the option expiration date (leading to the issue I mentioned in my other response). But you've spent the option premium you collected buying those incremental shares. There will be some amount of residual cash at the end - presumably less than 1 share worth of cash . A completely reasonable thing to do (MHO), but you can't have both (the shares purchased with the $475k AND the 475 incremental shares).

And you can go somewhere in between. Buy 300 incremental shares, sell 3 more calls, and sit on that residual cash for whatever you'd like to do with it (for example).

Thanks. I will check up on those links. Can never learn too much.

Yes, I might have written it a bit weird.. I do understand that it will be 475 extra shares, but when those options are excersised and share called away, I do get the cash. Put in those numbers, so its easier to compare the end result after two years.

Agree - worst case would be quick SP gains which will lock shares (and calls) for 2years - and turn it into a waiting game, where you just watch missed oportunities with a growing/rocketing SP.

I have been playing with options (for fun) for soon 10 years with Tesla, so starting to understand it I think but still on amateur levels.. been lucky quit a few times, and then sideways movement have eaten up the paper-gains more than once. Have had a few thousand grow to $50-70k - and then back to zero twice, and managed to cashed out one time.. so all in all, have left considerable more money on the table than I have cashed out, but I am nicely in the green. :-D

My night sleep however - I will never get back.. volatile options wreck havoc with your mind, sleep and stomach. :-D