This is a continuation of a trade that started as an earnings play iron fly (see post below).
There are a couple of reasons I went this particular way, as opposed to attempting to continue to work the setup "as is."
First, the March 17th 40 short call was deep in the money. Even assuming I could roll to improve that strike a bit, it would still be deep in the money. Deep in the money options are generally made up of a lot of intrinsic value, so you won't get that much time decay out of them.
Secondly (and relatedly), you can't get much of a credit to roll a deep in the money short option because you're basically rolling from a mostly intrinsicly valued option to, well, a mostly intrinsically valued option, and so you're not picking up that much premium such that you'll receive a credit for a roll. Just to make sure, I checked to see whether I could get a credit to roll out to the April 21st 40 short call "as is" and receive a credit -- no dice. Alternatively, I looked at how much a strike improvement would cost to roll from the March 17th 40 to the April 21st 41 to see whether I could sell a short put vert against for a credit which would exceed the cost of the roll; I wasn't happy with where I'd have to setup the short put vert to do that (basically, I'd roll into an inverted iron condor setup; far less than ideal).
As compared to a covered call: everything is "upside down" with a covered put: (a) you're looking to increase your cost basis in your short shares by selling puts against them; (b) if price finishes below your short by at expiry, your short shares get called away; and (c) you work to roll the short put out for duration and credit, attempting to keep it clear of current price action until you can exit the whole setup profitably. Here's I'm just looking to mitigate loss from the original broken trade or, ideally, get back to scratch.
There are a couple of reasons I went this particular way, as opposed to attempting to continue to work the setup "as is."
First, the March 17th 40 short call was deep in the money. Even assuming I could roll to improve that strike a bit, it would still be deep in the money. Deep in the money options are generally made up of a lot of intrinsic value, so you won't get that much time decay out of them.
Secondly (and relatedly), you can't get much of a credit to roll a deep in the money short option because you're basically rolling from a mostly intrinsicly valued option to, well, a mostly intrinsically valued option, and so you're not picking up that much premium such that you'll receive a credit for a roll. Just to make sure, I checked to see whether I could get a credit to roll out to the April 21st 40 short call "as is" and receive a credit -- no dice. Alternatively, I looked at how much a strike improvement would cost to roll from the March 17th 40 to the April 21st 41 to see whether I could sell a short put vert against for a credit which would exceed the cost of the roll; I wasn't happy with where I'd have to setup the short put vert to do that (basically, I'd roll into an inverted iron condor setup; far less than ideal).
As compared to a covered call: everything is "upside down" with a covered put: (a) you're looking to increase your cost basis in your short shares by selling puts against them; (b) if price finishes below your short by at expiry, your short shares get called away; and (c) you work to roll the short put out for duration and credit, attempting to keep it clear of current price action until you can exit the whole setup profitably. Here's I'm just looking to mitigate loss from the original broken trade or, ideally, get back to scratch.
Komen:
Checked my math with all the previous rolls, coverings, etc. from the broken trade: scratch point is now 45.65; current setup value is 49.68, so I've got some work to do.
Komen:
Rolling the April 21st 47 short put to the May 17th 46 short put for a .57 credit. I probably should have checked the 30 delta strikes in both April and May and used the May expiry in the first instance, since the 46 strike would be right around my cost basis. In any event, scratch point is now 45.65 + .57 = 46.20, so the the short put strike is just below my cost basis at this point ... . Perfectamundo.
Komen:
With earnings approaching and the possibility that this will move up precipitously, I'm setting up to roll out to the August 48 short put for 1.80. Although this adds fairly huge duration to the setup, it also tacks on 1.80 to my cost basis (resulting in a cost basis of 47.80), puts the break even closer to current price, and increases the possibility of my being able to exit for something approaching scratch. Naturally, if this caves on earnings announcement, I'll regret rolling this out here, since I'll probably have to hang in with it longer ... .
Komen:
Filled the roll for 1.76, so cost basis is 47.76.
Komen:
Covering here for a 51.88 db, so taking the 4.12 loss and moving on. The position's taking up a disproportionate amount of buying power and is apparently giving my broker's software knipschen fits ... . Ugh.
