[ux_html label=\”Ad_1\”]

[/ux_html]

Introduction:

In this article we will discuss a very interesting point but never given enough credit, which is the importance to keep updated and know the full financial side of a trade when rolling a short stock option, especially after getting assigned and the initial stock option trade becomes a long stock position.

As an option seller, we always need to make sure that we keep all the trade input parameters as well as the input details from trade management, so we can calculate our Break Even on the trade.

If we get assigned and our short option becomes a long stock position, knowing all the premium collected prior to that transition from option to long stock, can help us to determine when to get out of the stock or at least knowing how much is our cost basis on that particular trade.

Trades often get confused when rolling ITM trades, because often depending on how many rolling a particular trade requires, because even if the stock is trading below our breakeven price, we can still losing money if we close the trade at the wrong time. Therefore, it is very important that we don’t get confused with this very simple but quite confusing topic of rolling and managing trades, and at the same time paying attention and keeping track of our final trade break even.

And that is what we are going to learn during this article, which is how we can always make sure that we keep track of our trade final break even.

But firstly, let’s do a quick recap on what trading Cost Basis means:

If we sell the 45 DTE, $50 Strike Price for an initial Premium of $1.50. Out cost basis in this particular trade would be

$48.50, which is the Sold $50 Strike Price minus the initial Premium received or $1.50.

Therefore, it is very important for us options sellers to keep a trading log of all the premium collected during the trade.

Because if we ended up Rolling the trade for an additional $1.50, our total premium collected would be $3.00 and our final cost basis in this trade would be $47.00 instead of $48.50. And once we are aware of our final cost basis we will know exactly what price the stock needs to be trading at for us to be able to close the trade for a profit or scratch.

By the way, if you are not aware of Rolling Trades, please read for FREE our \”Cash Secured Put Management\” Article below:

Another reason that is very important for an investor to keep the trading log of all the open trades, is that sometimes we can convert a single leg option into a defined risk trade with multiple legs, and doing that we can collect more premium and each strike of that defined risk trade trade will have a different break even.

As a full-time Trader/Investor, I highly recommend tastytrade as a broker to trade options

By taking advantage of tastytrade\’s $100 to $2,000 bonus, you can get started trading today with the best option trader broker

For example:

If the option got assigned and now the investor is holding the underlying, the investor can start selling Short Calls turning the trade from a initially Cash Secured Put strategy into a Covered Call strategy, and the short call leg option will have a different break even strike price than the initial short put strike price of the cash secured put.

Apart from always keeping our trading journal updated when selling short options, we also need to make sure that we always manage our ITM trades by Rolling the trades for a Credit and not for a Debit, and you can also learn how to do it by reading the “HOW TO MANAGE CASH SECURED PUT” by clicking on the link below and getting instant access to the article.

Because by rolling our ITM trades for a Credit, we will always be decreasing our final risk on the trade, and not increasing if we do roll it for a debit, and that is why it is so important to know how and when to manage the ITM short option trades.

Here at Unison Trading we have very advanced Trading Risk Management methods that allows us not only Roll for a Credit all the time our ITM trades, but also provides us with more money that we start with.

Another factor that makes our Trade Management is so effective, is that we don’t need to wait for the stock to come back to our sold strike price to be able to close the trade for a profit, but rather we can apply some of our advanced trade management and be able to meet the stock half way, enabling us to close the trade with more premium collected than the initial premium received at the beginning to the trade.

Trade Notations:

• S = Current Stock Price
• K = Strike Price
• P = Premium
• DTE = Days to Expiration
• IVR = Implied Volatility Rank
• Moneyness = OTM
• IV = Intrinsic Value
• EV = Extrinsic Value

Trade Example:

This is a quick example of what kind of trade management we do here at Unison Trading.
Ticker symbol BA (Boeing):

On Feb 10^th ,2020, Boeing, the ticker symbol BA, was trading at the $335, and we found the level of $310 to be a good support level opportunity to sell a short option on Boeing, so we enter the follow trade:

Trade Input Parameters:

We sold the OTM $310 Strike Price and initially collected $350 per contract on a 44 DTE trade, which would provide us with an annualized rate of return of 9.47%. The annualized rate of return for this particular wasn’t much due to the very low volatility at that time, but considering that the trade had an 8.51% downside protection, we found that to be a very good trading set-up.

LEARN FOR FREE OUR TWO MOST POPULAR STOCK OPTION STRATEGIES

[row]

[col span=\”6\” span__sm=\”12\”]

[ux_image id=\”5964\” height=\”56.25%\” link=\”https://unisonfinanceclub.com/landingpage/pluginops-page-5647-3/\” target=\”_blank\”]

[button text=\”CLICK TO LEARN\” color=\”alert\” radius=\”99\” expand=\”true\” icon=\”icon-checkmark\” link=\”https://unisonfinanceclub.com/landingpage/pluginops-page-5647-3/\” target=\”_blank\”]

[/col]
[col span=\”6\” span__sm=\”12\”]

[ux_image id=\”5970\” height=\”56.25%\” link=\”https://unisonfinanceclub.com/landingpage/pluginops-page-5647-3-2/\” target=\”_blank\”]

[button text=\”CLCIK TO LEARN\” color=\”alert\” radius=\”99\” expand=\”true\” icon=\”icon-checkmark\” link=\”https://unisonfinanceclub.com/landingpage/pluginops-page-5647-3-2/\” target=\”_blank\”]

[/col]

[/row]
[ux_html label=\”Ad_1\”]

[/ux_html]

Trade Profit and Loss Diagram:

1 Short $50 Put at $1.50 premium per contract.

On 20^th of March 2020, the stock dropped all the way down to the $95.00 price level, and at this point we started to apply our Advanced Risk Management.

During trade management, we managed to decrease the sold $310 Strike Price from $310 to $202.5, a decrease of 34.7%, which in normal circumstance an investor would need to wait for stock to be trading back to the $310 level to be able to get out of the trade, but because we have many tools that allows us to deal with any type of bad stock market conditions, we managed to work out our strike price down $107.5 or 34.7% which was a significant amount.

And on June 6^th, 2020, as the stock price traded all the way up to the $231 price level, we had the opportunity to Buy Back the option for $0.02 cents.

For the whole trade we had the following Rolling Trades:

• Roll 1: Credit Received $1.25
• Roll 2: Credit Received $0.45
• Roll 1: Credit Received $0.85
• BTC = $0.02

Total Trade Premium collected: ($3.5 + $1.25 + $0.75 + $1.75 – 0.02) = ($7.23) = $723 per contract.

• DIT: 117
• Total Premium = $7.23
• Final Annualized Rate of Return: 11.17%

Therefore, our final Annualized Rate of Return was greater than we had at the beginning of the trade, the final 11.17% annualized rate of return was 1.7% higher than the initial 9.47%.

But the main thing you should take as a final takeaway from this trade management example, is that fact that we managed to decrease our sold Strike Price from $310 all the down to $202.5, which in terms of applying risk management on a bad trade, it is good as it can get.

We as an option seller, we always need to make sure that we put risk management first on every single trade, and here at Unison Trading all our risk Management is done prior to entering the trade, because we do believe that once we press the trigger it is too late to worry about it.

If you are interested in learning more how we manage our trades, just click on the link below and join our community for investors and learn and trade with us.

“Remember that, we don’t get paid for trading, but rather from making great decisions at the right time”

Having a journal with all the details of our trade entries and trade management, is the best way for us to keep track of our trade Break Even point.

Let’s have a look at an example of a naked put trade where we Roll the trade until we manage to close the trade for a profit.

In this example the trade inputs are:

• S = $60
• K = $50
• P = $1.50
• DTE = 30
• IVR = 30
• Moneyness = OTM
• IV = $0
• EV = $1.50
• DIT = Days in Trade
• BTC = Buy to Close
• STO = Sell to Open
• BE = Break Even

With the stock trading at the current price of $60, we sold the $50 Strike Price Short Put for a Premium of $1.50 with 30 DTE, and the option moneyness was OTM, which means that the current stock price is above the sold strike price, and if nothing change until expiration date, the trade will be expiring worthless.

With 20 DTE or 10 DIT, the stock dropped to $47.50 and the option is $2.50 ITM. At this point we can manage the trade by rolling the option for a future expiration date or simply let the trade play on until expiration date.

If the option still ITM at the expiration date, we will be getting assigned 100 shares per contract sold, and at this point we can sell the shares at the market price and re-establish the same trade by Rolling the option forward, or just get hold of the stock and starting selling covered call on it, but either method we choose we need to keep track of all the premium collected so far.

Trade Management:

Let’s see the example where we just roll the option for a future DTE, by doing the  following procedures:

Roll 1:

Trade expires at $47.5

• BTC the $50 Strike Price for $2.50
• STC the same $50 Strike Price for a Credit of $0.50, with a new 30 DTE.
• Net Premium = (1.50 + 0.50) *$ = $2.00
• New BE = $47.50

And after the 30 days the volatility decreases from 45 to 40 as the stock recovery from $47.5 to $48.50, but the option still trading ITM, so at this point we can do the following trade management.

Roll 2:

Trade expires at $48.5

• BTC the $50 Strike Price for $1.50
• STC the same $50 Strike Price Credit of for 0.75, with a new 30 DTE.
• Net Premium = (2.00 + 0.75) *$ = $2.75
• New BE = $47.25

Note: At the point of the second rolling, we could just have sold the stock outright at the market price for $48.50 and still making $0.50 on the trade, which is the ($48.50 – $50 + $2) = $0.50, but we opted to keep managing the trade in this particular example.

But here is where when most of the investors get the maths wrong, when we just did our second rolling, in our brokers trading platform the option would be showing the $1.50, which is what we paid for the second rolling. And at some point once the stock starts to recover, the option will be starting to decay as well, for example, if the stock is trading at the $49 price, we can also close the trade, by buying the option back for $1 and keep the $1.75 profit.

But in some cases if the stock is trading deeper ITM, like $45 for example, on the second roll we would have paid $5.00 to roll the trade. And at the broker trading platform the option would be showing $5.00, which would be the price paid for rolling the option, and at some point if the stock start to recovery and the option start to decay, let say to $4.00 for example, some investor thinks that the $1.00 decay difference is profit, which is not, because our breakeven on that option would, the $5.00 minus the $2.75, or $2.25, we we need to be careful we dont lock in loss during trade management.

The $2.25 option buying back price is the point where we can start to think about buying back the option for a small profit or scratch, or just wait to see if the stock expires OTM, so we can keep the full $2.75 premium collected during this trade.

Therefore, it is very important for us to ignore the brokers platform option price, and keep focus on our BE point calculations.

And after the 30 days the volatility decreases from 40 to 25, and the stock finally is trading OTM again, and at the expiration date the stock recovers to $52.50 and the option expires worthless.

• Net Premium = (1.50 + 0.50 + 0.75) *$ = $2.75
• New BE = $47.25

There are plenty of others trade management where we can significantly improve our final profit on a particular bad trade, and this is what we do here at Unison Trading, but no matter which approach you may take, just make sure that you always keep track of all the rolling credits received during trade management, so you are aware exactly where the final trade BE is.

PUT YOUR KNOWLEDGE INTO PRACTISE: JOIN OUT TRADING COMMUNITY

Here at Unison we show our Real Trading Statement Results and we dont hide anything from our clients … Real Statements from Interactive Brokers . Our Trading return goals are very Realistic & Achievable and Honest, that is why we are consistently profitable year after year.

If you are after honest traders that is really profitable and dont sell BS and unicorn type of returns for clients and would like to trade like a professional investor with the long term goal in mind, you are absolutely in the right place.

Here at Unison Trading we are not concerned how many trades we put a day but rather how many quality trades we have traded on that day, so please don’t expect to join us and hoping for daily adventure and excitement, we take our trading and business very serious as we find it the greatest opportunity for us to create/maintain wealth and this opportunity is not done by excitement but rather professionalism on everything we do.

Although, here at Unison Trading we don’t trade looking for excitement neither for having fun, we are very aware of the Law of Large Numbers (Number of Occurrence’s), as we always make sure that our number of occurrences are in place so the probabilities can play out. Remember that the maths doesn’t lie.

Why Follow our Trade Alerts

• 100% Real Broker Statement (Interactive Brokers)
• Consistently Monthly Income
• Realistic – Achievable and Honest Results
• Lower the cost basis of your portfolio (stock)
• 100% Transparency
• Generate Increased return on investment
• Control Stock without owing it
• Leverage Capital
• Reduce Risk

And of course the main thing as a professional trader, Be Profitable .

What You’ll Get

• Real-Time Trade Entry
• Real-Time Trade Exit
• Real-Time Trade Management

All streamed live straight to your WhatsApp, so you can just check the alerts and place the same trades with nothing hidden.

——————————————————————————————————————————————————————————————————————–

[give_form id=\”1863\”]

[ux_html label=\”Ad_1\”]

[/ux_html]