Buying back put contracts early?

[joesxm3]

I am continuing to dip my toe into the water selling put contracts.

As you may remember, I sold one contract on TSLA and was advised that I was taking on more risk than I realized. A couple days into it I bought the contract back and made about $250.

A couple weeks ago I sold one March 4 put contract on SQ with a strike of $95 and got a premium of $740. My plan was that $100 would be the floor.

A week or so into it, the SQ price had risen to $114 or so and I could have bought back the put contract for a gain of $450 or so.

I was wondering if, with this type of volatile stock, it makes sense to buy back the put contract early in order to lock in about half of the premium.

I say this today with SQ closing around $97.65. In retrospect, the $450 in my pocket might look preferable to riding it out for the full $740.

I suppose this may fall under the mistake category of selling your winners and letting your losers ride.

Any thoughts?

In related news, I wanted to buy some PLTR after the price dipped following the earnings call. I sold 2 put contracts at $13 and two at $12. I closed the $13 one yesterday at a loss and the $12 contracts will probably be assigned to me tonight.

It was an interesting learning experience. I kept the position size small, so I am not hurt very much.

 

[Sunset]

Currently, if I do options, I'm keeping them short, as the market is so crazy.



Good news is the time decay on your SQ put is taking effect. Question is do you want to own this stock at this price. The current price is as low as it was in July 2020.

Bad news is this stock has been on a decline for a long time, which is not a good sign.

 

[NW-Bound]

With the market being so crazy, if a contract I sold has its price drop to 1/2 or 1/3, I buy back to grab the gain and run. A bird in hand... Heh heh heh...

And this is for contracts only 2 weeks out or less!

I don't do longer options, even before all this volatility. However, I used to let them expire worthless before starting to sell new ones.

 

[joesxm3]

I guess my question is not so much about my exact contracts as it is whether people who do this a lot buy the contracts back early and when does it make sense to do so.

 

[aja8888]

I guess my question is not so much about my exact contracts as it is whether people who do this a lot buy the contracts back early and when does it make sense to do so.

I don't bother and let it run out. Selling a put contract is done because you would want the stock at a lower price. Why close the option and leave some money on the table?

 

[NW-Bound]

I don't bother and let it run out. Selling a put contract is done because you would want the stock at a lower price. Why close the option and leave some money on the table?

Yes.

Unless you are like me and ladder your options.

When some contracts expiring last week made me buy already and I think I have enough in that position, I change my mind and don't want more.

Or when other put options already made me buy, and my stock AA is getting to the high end of my desired range, I also do not want more stocks.

I like stocks, but like steaks, too much can give you indigestion.

 

[MRG]

I guess my question is not so much about my exact contracts as it is whether people who do this a lot buy the contracts back early and when does it make sense to do so.

If I buy a put back early it's to do a "roll" to collect additional time premium. I imagine you could have done that with your $12 pltr putting if you didn't want to own it.

 

[NW-Bound]

If I buy a put back early it's to do a "roll" to collect additional time premium...

Yes!

Forgot to mention the above as another reason.

Option premium is like tapas or pintxos to me. Each piece may not look like much, but before you know it, you are full. And you can certainly get fat on tapas.

And if a piece is not to your liking, hey, it's just a small loss.

I just love it.

 

[Montecfo]

If I have a 50%+ gain on option trading, I tend to take it, especially if quick.

 

[Running_Man]

I will take the premium if the time value has dropped substansially. Since in most cases I am very willing to take possession of the stock if the price falls to my value I will let it run. I do not view options as seperate from my portfolio, I consider them orders to buy or sell the underlying positions I am trying to establis and am willing to be paid to have a GTC order in essence out there earning me money. That is why I am not selling TESLA options because I do not want to own TESLA. However based on the premiums I think if I did only that for hours a day at 100% annual return I think I could do pretty well.

 

[joesxm3]

Well after nearly puking my guts out yesterday morning when SQ dropped to $82, I bought back my 3/4 $95 put contract today for $29. I kept $711 of the $740 premium.

I also bought 30 shares of SQ around $84 yesterday morning, so I guess I got lucky with the earnings beat.

So far, I closed two puts at a profit, one at a small loss and got assigned one.

I appreciate all the advice and risk warnings. Thanks.