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Thursday, March 28, 2024

Comment by Winston

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  1. Winston

    Phil / Slow day – I hope you will indulge me – I posted this over the weekend. Deano was kind enough to suggest an approach as well as waiting for things to develop. If you have a chance I repost for your point of view.

    Glass half full or empty – managing ratio writes – help appreciated.

    I believe I am in a fortunate situation, when finally my patience of shorting financials in the guise of JPM and GS is paying off. I will focus on GS, and I think there are interesting learnings for those who insist (like me) in playing with the bread and butter trades of PSW. Eons ago I had placed BCS with a lower strike short put, and when the short call went in the money, greed took over and I started selling short front month calls. Of course, up until recently, the only way was up and those front month calls needed to be rolled and rolled and rolled. Then of course the tactic was to layer on higher strike longer BCS. Rolling up and doubling down on short calls and layering on BCS sprinkled with a liberal amount of strike adjustments to consolidate positions ultimately leads to significant ratio write positions. That is a challenging place to be as the stock keeps climbing higher as each trading day passes by, but boy oh boy when the strength and momentum fades the rewards look enticing – depending on the choices that are made. And that's where I need the help. Apologies for the long winded explanation but I thought it would serve some purpose for other members. Now for my current positions on GS:

    Long 120 GS Jan 15 150/160 BCS – 150 calls @ 13.32; 160 calls @ 8.60

    Short 80 GS Jan 160 calls

    Short 30 GS Jan 170 calls @

    P&L on the positions

    Long 150 calls: -$103k

    Short 160 calls: +$156K

    Short 170 calls: +$29k

    Net P&L: +$82k

    The question(s); are there any ways to improve the position? I believe financials will suffer from more short term weakness, then rally, then flatline. I had the idea of cashing out the long Jan 15 150 calls. Obviously that leaves me mega exposed to a move by GS. So I thought of placing the Oct 150/160 BCS @$4.70. I could buy 200 contracts and still have cash over from the sale of the Jan 15 150 calls. For the Jan 15 short 160 & 170 calls to create issues, the October spread would likely be in the money (although I recognize it could need adjusting if things turn out differently). If GS is above 160 in October, I would have enough cash to start layering on new BCS.

    As I write this it looks like a combination of greed and complexity (never happy bedfellows) – so please feel to pull my ideas apart and hopefully we will all learn something.   



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