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Tales of a Technician: Rolling Naked Puts & Put Spreads

May 10, 2022

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With the market decline, many naked puts and bull puts are pushing ITM. Here’s how to think through how to roll the position.


Stop Loss:

1) exit trade on a break of support.

2) exit trade if we reach short strike price.

3) I’m a willing buyer of the stock and am okay being assigned.

                i. Roll the put or bull put out in time and often down in strike.

4) I’m willing to take max loss.

                i. Roll the put or bull put out in time and often down in strike.

May $188 naked put. Originally sold for $2.

1) If assigned, I’m long shares at $186.

                a) Then sell June covered calls to recoup my loss.

2) Roll the ITM naked put to June to dodge assignment and push the trade out another month.

                a) Reason One: The cost of maintaining a June naked put is less than the cost of owning 100 shares.

                b) If I sell a June $180 naked put. That’s the SAME THING as buying 100 shares and selling June $180 cov call.

If I roll well before expiration, it makes the trade LESS AGGRESSIVE.

Over the next 11 days, a May $188 naked put will make/lose money faster than a June naked put.

Roll: Close the May $188 naked put for $13.30 (realized loss of $11.30). Sell a new June $181 naked put for around $11.

                ADVANTAGE: Rolling down & out, I increase my probability of profit. Short strike falls from $188 to $181.

                ADVANTAGE: I pick up more time value in the June option vs. what was left in the May option.

                DISADVANTAGE: I can lose more money.

May $26/$23 bull put for 40 cents. Max loss $2.60, if CCJ is below $23 and the put spread is ITM and worth $3.00.Currently it’s worth $2.60, so if I subtract the original 40 cent credit, unrealized loss is $2.20.

a) Stay the course for the next 11 days. Risking 40 more cents if CCJ doesn’t recover.

b) Exit the trade, take the $2.20 loss. Pro: can’t lose anymore. Con: can’t make any money back if the stock recovers in the next 11 days.

c) Rolling to June: If I run out of time with the May trade and I want to maintain exposure

d) Rolling to June: I want to get more conservative for the next 11+ days.

“Rolling” is nothing more than closing your current trade and opening up a new one.

IF you can roll for EVEN ($0) then it doesn’t increase your risk AT ALL.

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