Today’s video investigates how rolling an option position works with a focus on naked puts. Within, we discuss all the variations and when to use each:

Enjoy!

NOTES

How Delta Hedging Works

Delta measures how much you make if the stock rises $1.

Rate of change vs. $1 move in the stock.

Positive Delta = Bullish

Negative Delta = Bearish

Stock: 1 share = 1 delta. Buy 50 shares of stock, I have a 50 delta

Stock: Short 1 share = -1 delta. Short 50 shares, Short 50 deltas

Option: Long call: + Delta

Option: Long put: – Delta

Option: Short call: -Delta

Option: Short put: + Delta

Key Concept:

-I want more exposure as stock moves favorably & less exposure as the stock moves adversely.

Example: Bullish position (delta +100), stock breaks support, I’m not as bullish anymore.

Long 100 shares of stock (delta +100). Sell those 100 shares of stock (delta -100)

Long 100 shares of stock (delta +100). Sell a call against the stock (delta -40)

NEW POSITION DELTA: 100 – 40 = 60

Long 100 shares lose $100

Short 1 call gain $40

Net loss $60

Add an offsetting position: Add a bear trade

Subtract an existing bullish position: Exit the trade. Close down part of the trade.

Short ARKK May $32 naked put

I prefer adding POSITIVE THETA HEDGES with HIGHER PROBABILITY

Core position: Long stock/short puts/bull put

Usual hedge: Sell calls or bear calls (+theta, -delta, higher POP)

Less preferred hedge: buying puts/buying bear puts (-theta, -delta, lower POP)

Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.