Thanks for the suggestion, I closed some and sell some BPS for next week.
Just wondering, since mine is -700/+600 BPS this week, they cannot exercise it at all, right? So there should be no harm to hold these till expiry tonight?
They -can- be exercised. Understanding the mechanism will help understand the risk.
For that 600 strike put you purchased, you have the right to exercise it anytime you want. Doing so provides you the right to sell your shares for $600 each. Would you exercise the put and sell your shares at $600, when you can sell them on the market for $780? Of course not
Meanwhile that 700 strike put you sold is owned by somebody else. That person has the right to exercise their 700 strike put which can lead to you being assigned. Should that happen, they will sell you their shares at $700, which you will buy at $700. Would you like to buy at $700 with shares at $785? Of course you would.
The tricky bit here is that the option owner has about 30-90 minutes after close of trading to exercise their option. So if the market closes and extended trading begins, news comes out, and the shares go from 785 to 685 in the blink of an eye, the people that own those 700 strike puts might go hit up their brokers with option exercises, and that can lead to your very OTM put option being assigned after hours when you thought they were way, way OTM and expiring worthless.
Likely? Not at all. But always possible - the mechanics are there to make it possible.
I’ll ask the same question I asked earlier, if I’m looking to take the premiums I earn and reinvest back into Tesla because of the potential 2-3-4x upside, the best way to do this is buy shares or leaps? Looking at option profit calculator seems to indicate shares? What is everyone else doing? Buying 800 Jan 2024 leaps? I am really looking to increase my leverage so I can sell more puts / bps in the next 2-3 years. Thanks and have a great weekend!
I don't know about best
I plan to be adding the 600 strike Jan '24s. I think that strike is far enough ITM that it won't go OTM, and so I'll have 2 years of call sales against the contract.
This did have me thinking about something. I put energy this last week into selling some covered calls (lcc's actually). They were successful and closed today for about a 75% profit. They got about as much energy as the BPS I sold for this week, and yielded maybe 1/30th of the income. Partly that's a function of how much more cash I'm using for BPS. But a lot of it is a function of the call premiums relative to the put premiums. The calls just don't pay enough.
I really like having positions open on both sides, but until the calls are paying better, I'll be using excess put premiums to keep piling up the leaps, and selling calls now and then against them. Mostly I'm just going to bias towards staying away from call sales - the risk / reward / effort is just bad, while the BPS risk / reward/ effort is good.
