Updated: Sep 7, 2021
Tomorrow is monthly option expiry day, which means we have a ton of positions expiring that need to be managed. Thanks to the pullback in the market this week it doesn't look like we're going to be able to collect max profit on as many as we would have liked, but as always we should be in a decent place to manage them. Let's break it down with each position that needs to be managed:
Position: -15 8/20 27.5p and 1500 shares covered with 8/20 27.5c
Current breakeven: $28.81
So we've been at the mercy of CRSR since mid-June when we tried to scalp some premium. It has lead us down this miserable path but we're going to see what we can do to dig ourselves out of this one. IV is at a 180-day low but we're approaching the $25 level which should act as some sort of primary support.
As you can see from the chart above, RSI (plotted at the bottom) is extremely oversold. There have only been 4 other instances in the last 180 days when the RSI was this low and it resulted in bounces of $2.50, $3.50, and $3.50 again. One of my biggest goals here is not to let a loser become something that ruins a chunk of your year. So while we're currently down $7,600 on this one, I worry that rolling the strangle would leave me susceptible to a market drop over the next month if things were to continue to go south.
I'm a big believer in RSI though so I do want to maintain a bullish position. To cut to the chase, I'm planning on rolling down into a bunch of 25p. Here is how I got to that decision. My first instinct was to roll out the strangle to September, dropping the strike on the cash secured put to 25. Doing this mean that my loss on the trade would only go down to $5.1k overall on CRSR. Here is how that would look:
If CRSR dropped to something like $23 over the next month, my trade would be at an overall loss of $12,000. I want to avoid that. So in order to accomplish that my plan is to roll everything into 30p. That means rolling the 15 27.5p down to 25p and closing out my 15 covered calls and replacing them with 15 more 25p to give myself -30 9/17 CRSR 25p. Here is how that would look if CRSR remained flat for the next month:
So this actually puts us better off if CRSR remains flat, which I always feel is the most likely price for something to trade at. To further the "stress test" example of if CRSR dropped to 23, this would be losing $10k as opposed to $12k. So still not beautiful but also not terrible. If we finish above 25 I could potentially roll the position into October for another $3k and see if I can find a way back to breakeven before YE but we'll cross that bridge when we get to it.
TLDR: Roll entire position down to 9/17 25p
Position: -20 8/20 7.5p
Current breakeven: $7.10
We're keeping this one nice and simple. We sold 20 8/20 7.5p initially and closed half on Wednesday in an effort to lock in some profits and free up buying power. We're going to roll the size of the full initial position into September which should set us up to profit on the overall trade. The closing price on row 2 assumes the $7.08 price that it closed at today. It's up AH so we may get an even better fill.
Breakeven price goes from $7.10 down to $6.51. Mission accomplished.
Position: 1400 shares with 3 strike covered calls and -14 2.5p
Current breakeven: $2.63
This is a trade where we quickly went from being in the driver's seat to trying to stay above water as BBIG dropped a cool $0.60 this past week. As you can see we've endured an overall 42.22% drop on this one in just under 2 months. That's some serious damage, but we can manage. As of right now we have 28 "units" of the trade (14 cash secured puts, 14 covered calls). With our breakeven at $2.63 that means that fully cash secure this takes up about $7,364 of collateral (2.63 * 28 * 100). We can definitely afford to scale in, but now the question is how much. The 9/17 2p offer some really nice premium objectively so my plan is to just sell enough of them that the overall trade would make money if BBIG finished above 2. It's not going to be a lot of profit but beggars can't be choosers when the stock they're playing drops 42%.
With $7,300 in play currently, I think I'd be comfortable scaling up to $10,000 overall fully cash-secured. That represents about 6.5% of my overall account so this is still a relatively small play in the scheme of things. With 2p going for $0.22 that would mean it takes $178 to cover the max loss on each short put. That means I could sell 60 of them for $178 of collateral apiece and that would get me to $10,680 of collateral. Right on the money. It also just so happens that 60 cash secured 2p would get me back to an overall profit.
So there we have it. It's not a ton of profit for what will be a 2.5 month trade, but the possibility of pulling out any profit at all from a trade that has dropped this hard against us is pretty solid in my opinion.
Breakeven price goes from $2.63 down to $1.96. Not too bad for a stock that started at $3.79.
Position: -20 8/20 8p
Current breakeven: $7.69
Being the huge fans that we are of CLOV when it gets down into this range, we happily sold some 8p expiring tomorrow. My one regret is the position sizing here. Got a little greedy by going in on 20 of these off the bat because that's a 16,000 position size fully cash secured, but margin requirements were lower and we can still pull this one out. The plan is simple: roll these down and out to a 7.5 strike expiring next Friday. Here is how that would look using prices as of today's close:
What's great about this is the fact the debit to close the initial 8p is almost exactly the same as the credit to open the new puts. That means we can now basically make the max profit we had in mind last week, but at a max profit level that's $0.50 lower than before. Only downside was that we had to wait another week, but we have all the time in the world to sit back and wait for profit to roll in. This is why time is our friend. The best part is that we don't even need to scale further in to play defense here so we still have that ace up the sleeve in case things continue to pull back.
Breakeven price goes from $7.69 to $7.21
Position: -15 8/20 6.5p
Current breakeven: $6.35
Very similar to the trade above. Roll them down, roll them out, and sit back and wait another week. Only "twist" is that I'll plan to add 5 more 6p to bring the total quantity up to 20. These have a crazy low margin requirement so if it finishes above 6 next week that's a 7.19% return in 2 weeks which is good enough for a 500%+ annualized return
Breakeven goes from 6.35 to 5.88
Position: -15 8/20 10p, -15 8/20 9p
Current breakeven: $9.27
Planning to let this one just ride. I took profits on half (7) of the 10p on row 2 so that $0.30 has been locked in. Assuming this one finished above 9.27 tomorrow I'll take a W, free up the buying power, and walk away with a profit.
Position: -15 8/20 12.5p, -30 8/20 10p
Current breakeven: $11.47
What seemed like a layup got turned on its head when NRXP announced an offering this morning that sent the stock down from 13.25 to 10.5 at the lows during premarket. It rebounded nicely for us and even gave us the opportunity to jump in on some 10p. Our current breakeven is 11.47 so this is another one where I'm happy to close out, free up BP, and take profits if they're there tomorrow afternoon. Hoping for the miracle rebound to $12.50+ for max profit. A man can dream.
This is an interesting one though because if you plan to take assignment on the 12.5p, there are a decent amount of options. Assuming that you follow the HT wheel and leg into a covered strangle, there is some good premium out there. The September 10p offer about 1.15 of premium and the 12.5c offer 1.70. That is a combined 2.95 reduction to whatever breakeven price you have. So if you have a breakeven near 11.75, entering into that strangle would set you up with an $8.80 breakeven price headed into September. That's really solid. Just for the sake of the example, here is how that would look (assuming we let our 10p expire worthless and took assignment at 12.5)
This assumes that NRXP trades flat, but there is some crazy upside here. If NRXP finishes at $12.50+, then the profit jumps to $5,800. The breakeven price is $9.31.
There are also two other strangle options that are fun to play with. The more conservative covered straddle (meaning you sell a call and put at the same strike), and the big upside strangle.
The conservative straddle would be selling the covered calls at 10 and the cash secured puts at a 10 strike as well. Here is what that would look like at max profit (Anywhere $10+):
This offers a really decent return. Only $1300 short of what option A above offers and it has a much lower max profit point ($10) and breakeven price ($8.81).
Now for fun lets look at the high upside strangle. NRXP has some crazy premium right now at strike that are far OTM. September 20c are going for about $0.52. That means your shares have upside up to $20 as opposed to $12.50 and $10 in the previous two respective examples. Here is how that would look at max profit:
And while this is what I would consider to be aggressive, the breakeven price here is still $9.90. Some interesting options to consider. And as we know, premium decays more rapidly on further OTM options, so you could close the 20c when the premium dies off of it and roll down to a lower strike to collect more.