Staring At Massive MTM Losses - What Should I do Now?

[intellibitz]

Keep 130 as your SL, this trade might turn to profits soon.

And I'm thinking of exiting partly (or fully) even without the first sign of profit (say, at 10k loss). It's a Jaan Hain Toh Jahaan Hain psychology!

 

[sanjosedesi]

Keep 130 as your SL, this trade might turn to profits soon.

Next 2 days might be choppy. Exiting now might give better opportunities to re-enter. On one hand, RBI and budget. OTOH, didi da drama.

 

[CASPER]

SmartCat No Offense Meant .....

 

[Autobronit]

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Bravo, the ideal answer.

 

[smartcat]

And while we wait for my doom, I have thought about a few option writing strategies for April expiry. Let me know your comments.

Strategy 1: ONGC Call Writing

I'm picking ONGC for call writing because I'm a dividend yield stock investor anyway, and ONGC is trading at 6% yield. And I don't expect ONGC to shoot up anyway because of its huge market cap and subsidy baggage. Is this a good plan? Collect premiums by writing ONGC calls & collect 6% dividend at the end of the year by holding 1000 ONGC shares?

But what exactly do I have to do if ONGC shoots up?

Sell all 1000 shares to cancel out the profits earned from shares with losses on the calls? And then buy 1000 more shares for the next month?

OR

If the losses from call writing are not significant, do nothing?

OR

If my losses from call writing are something like Rs. 28,000, do I just sell 100 shares (worth Rs. 280 each) and keep the remaining 900 shares?

I've read many articles on call writing, but nobody clearly mentions what to do if the stock goes up a lot

Mods: Let me know if it is not OK to ask my newbie questions on this particular thread.

Hi StCt,

Doing nothing at this stage......is not advisable....if you have the time & inclination.... you can turn this around.....!!!

SG

Are you suggesting I hold the call till expiry? Or hold till breakeven? Or see how things pan out over the next few days?

 

[intellibitz]

Good re-entry points today, around the lows.

Next 2 days might be choppy. Exiting now might give better opportunities to re-enter. On one hand, RBI and budget. OTOH, didi da drama.

 

[SavantGarde]

Hi StCt,

When I posted about waiting for a week, doing nothing, was to gauge the Market how it behaved with respect to your 5400 CEs..... thereafter you were away for a short while returning last Tuesday.....!!!

At this point, what is required is to trade it actively...... to bring it to Breakeven....because you have Time Decay factor working from now on even during Intraday....!!!

SG

Are you suggesting I hold the call till expiry? Or hold till breakeven? Or see how things pan out over the next few days?

 

[gunsho]

And while we wait for my doom, I have thought about a few option writing strategies for April expiry. Let me know your comments.

Strategy 1: ONGC Call Writing

I'm picking ONGC for call writing because I'm a dividend yield stock investor anyway, and ONGC is trading at 6% yield. And I don't expect ONGC to shoot up anyway because of its huge market cap and subsidy baggage. Is this a good plan? Collect premiums by writing ONGC calls & collect 6% dividend at the end of the year by holding 1000 ONGC shares?

But what exactly do I have to do if ONGC shoots up?

If it shoots up, you are anyway in profit (the premium received).

What you say is covered call. "Long Stock + Short Call", writing a call option with a strike price >= buy price of the stock. When stock goes down or stay flat, keep the premium. When market goes up, sell the shares to settle the call. Still you gain the premium. This is a low risk strategy giving monthly cashflow, generally used in upmarket.

Only risk is, what if the underlying stock falls by 50% than your purchase price? We need to manage with SL (and also close the call).

http://www.investopedia.com/articles/optioninvestor/08/covered-call.asp

 

[TheDreamer]

And while we wait for my doom, I have thought about a few option writing strategies for April expiry. Let me know your comments.

Strategy 1: ONGC Call Writing

I'm picking ONGC for call writing because I'm a dividend yield stock investor anyway, and ONGC is trading at 6% yield. And I don't expect ONGC to shoot up anyway because of its huge market cap and subsidy baggage. Is this a good plan? Collect premiums by writing ONGC calls & collect 6% dividend at the end of the year by holding 1000 ONGC shares?

But what exactly do I have to do if ONGC shoots up?

Sell all 1000 shares to cancel out the profits earned from shares with losses on the calls? And then buy 1000 more shares for the next month?

OR

If the losses from call writing are not significant, do nothing?

OR

If my losses from call writing are something like Rs. 28,000, do I just sell 100 shares (worth Rs. 280 each) and keep the remaining 900 shares?

I've read many articles on call writing, but nobody clearly mentions what to do if the stock goes up a lot

Mods: Let me know if it is not OK to ask my newbie questions on this particular thread.




Are you suggesting I hold the call till expiry? Or hold till breakeven? Or see how things pan out over the next few days?

Your questions show that you are an avid learner and ready to acknowledge your mistakes.

The question that you have asked regarding ONGC shows that you are interested in covered calls. Basically, you do not want to sell anything from your demat account but get the profit from options premium's time value only.

So the most important thing here would be the choice of strike price. Study the move of ONGC between two expiry days. say, the stock moves x% on average with a standard deviation of y%. Now you can choose the strike price at x% above the CMP to sell the option if you are ready to take a loss of max y% whose probability is very low. But the problem is - The stock options are very illiquid and the ones which are active are generally within (+/-) 10-15% of the CMP (for the most liquid ones like RIL, SBI, Telco, Tisco etc.). So you may get trapped by an unrealistic bid price. For this reason, you should also know how to value your options' price while selling it. Enough said. Let's c what you do.

 

[smartcat]

What you say is covered call. "Long Stock + Short Call", writing a call option with a strike price >= buy price of the stock.

The question that you have asked regarding ONGC shows that you are interested in covered calls.

Aah yes, yes. That's what I meant - ONGC covered call.

Only risk is, what if the underlying stock falls by 50% than your purchase price? We need to manage with SL (and also close the call).

Such massive falls won't happen to ONGC even over a longer time frame right? It's a grandpa's stock. Plus I have the protection of dividend yield - LIC will definitely jump in to lap up some shares if there is a massive fall.

But if I were to do a covered call for another stock, will keep what you are saying in mind.

So the most important thing here would be the choice of strike price. Study the move of ONGC between two expiry days. say, the stock moves x% on average with a standard deviation of y%. Now you can choose the strike price at x% above the CMP to sell the option if you are ready to take a loss of max y% whose probability is very low.

Makes sense. This means I've got some homework to do.

But the problem is - The stock options are very illiquid and the ones which are active are generally within (+/-) 10-15% of the CMP (for the most liquid ones like RIL, SBI, Telco, Tisco etc.). So you may get trapped by an unrealistic bid price. For this reason, you should also know how to value your options' price while selling it. Enough said. Let's c what you do.

I checked the ONGC option chain before selecting the stock for covered call writing. It seems to have better liquidity than others.