Rolling Puts

[Ian]

On the group mentorship a lot of us are left with long puts, which expire in September, but no stock. Who is rolling the puts up and out on these positions?

If so how far out are you going?

Ian

[smith]

why are you rolling the Puts when you have no underlying stock??

you are taking a view that the markets will fall (and paying for it). If the markets continue to rise-then you loose money. So I don't see why you still have these Puts with no underling stock??

[johnall]

I have mainly puts in my account since stock got called away last month was hoping for a correction in the market that has not materialised as yet, and it has cost me dearly,just as dangerous as holding stock with no puts in this volatile market just as well bet on the 3.30 at haydock park.

[francisco]

I have been specifically advised by CFL to roll up and out the puts, even in the positions without stock. But they have the view that the market will come down in the future and then we will re-buy the stock. The advice is 6-8 months and 5%+ ITM.

I think when you have the stock and a protective put it makes sense rolling up and out the put. This is very conservative and it's "protecting the profit on the stock". Generally the stock should go up more than the put goes down (although this has not happened for me in the case of XLE: the put has lost more than the stock went up!).

However, I agree with the above regarding naked puts (or long puts and short puts): it's speculative: if the stock goes down you will benefit from having rolled up the puts, if the stock continues to go up you will lose.

Personally I have rolled up and out those puts and am now trying to analyze the implications.

These are my positions where I don't hold stock:

EEM: long Jan 38 puts and short Aug 33 Puts (stock is 36.12)
EFA: long Jan 53 puts and short Aug 47 Puts (stock is 50.61)
XLE: long Jan 55 puts and short Aug 48 Puts (stock is 51.05)

[francisco]

Hi All,

This is what I'm thinking now:

To have only puts is speculative. It's like having only stocks or only calls. You will make money if the market goes in one direction and you will lose money if the market goes against it.

Now, the market has gone down a bit. A couple of the stocks I mention above are slightly below the price I sold them for. So I'm thinking of selling some of the puts (e.g. EFA) to raise cash to get back into the stock in EEM and/or XLE.

Of course this is closing the EFA position at a loss, but that loss was realized when we were selling calls in a raising market and "managing" them at a loss.

The stock could go down more, but we don't know. At this stage there is a chance of buying the stock at a lower price that what we sold it. I feel more comfortable with having put + stock, which is a more balanced position than having only one of the components. And it also give you more opportunities to sell calls/short puts when and if.

Any thoughts?

[francisco]

Hi Guys,

What did you do with your naked puts?

We were advised to sell the stock and the call, and keep the "protective" puts, to "wait" for the stock to come down.

Since then the puts are losing value every week, and it is a speculative position, to say the least.

Should we just sell them, assume the loss and invest the money elsewhere?

I'm sorry for the people who followed this advice for all their positions.

What did you guys do with the puts?

Thanks.

Francisco

[Ian]

Francisco,

I rolled out most of the puts to January last month - a complete gamble I know, but I do believe there will be a correction some time this year and maybe these will come good.

I also bought other stock at the same time - WIN (Windstream), PWE, AUY. These have gone up quite a bit which have somewhat offset the losses on the Puts. I have only bought cheaper at the money Puts to cover these stocks though and haven't sold any calls / puts against them.

As the market is behaving so oddly at the moment it is hard to know what the best thing to do with the puts is. Sell now and have a defined loss or gamble with the remaining value.

Ian

[smith]

see comments of 27/8 under "Market Correction this year"