OUCH! These closed the day down @ $7.70 or 9.3% below where I bought them. Is there anything we can do to help our situation? The long answer is ......... yes. It involves selling other strikes to help us out.
Option #1:
Sell the September CALLS with a higher strike price. If we sell some CALLS then we can collect money for such a transaction. This would lower our risk significantly but there is a downside. Our upside potential is now limited to the area of where the strike price is for the CALLS we sold. Here's an example:
Sell 25 FSLR Sep $155/CALLS @ $5.70
This would lower the cost of our contracts to $2.79. It is achieved by finding the difference between the CALLS we bought and sold.
$150/CALLS bought @ $8.49 $155/CALLS sold @ $5.70 Our new spread costs $2.79
The upside potential can be found by finding the difference between the strike prices of the CALLS bought and sold.
$155/CALLS - $150/CALLS = $5
This $5 figure is the total we can possibly collect and would be achieved once the PPS of FSLR is over $155. We still have a chance to get over 20% in this trade so this is a very good option for us.
Option #2:
Since we bought September contracts, we could also sell August CALLS contracts. Very similar to option #1 with one difference. In option #1 we end up with a 2 legged spread. With option #2 we would have 3 legs.
We keep our purchase just as we did above but we sell and buy 2 more strike prices in August. There is just a little more than 1 week to go until the August contracts expire. So if we sell contracts just out of the money by expiration, the contracts will expire worthless for the person that bought them from us. And, we get to keep the money they paid us to sell the contracts. Here's an example:
Sell FSLR Aug $160/CALLS @ $0.80 Buy FSLR Aug $170/CALLS @ $0.25 We collect $0.55 per contract sold
For us to be able to do this option we need a margin account and some capital needed in the account to cover the loss that may occur if FSLR gets above $160 by expiration.
Option #3:
Try a combination of option #1 and option #2
Option #4:
We can do any of the above options with PUTS as well. Get creative and do what we feel comfortable with for our very own trading style. This is why I love options so much. They are so versatile and we have opportunities even if we make a move that doesn't pan out right off the bat.
This is another reason I love using TradeKing. This brokerage house was made for the options trader. They have so many tools and the ability to set these trades up on one screen and then pull the trigger. Anyone willing to take a look at the TradeKing platform just send me a private message with your email. I will send you an invite. If you fund the account, I will get a nice $50 added to my account. But more than that, I fell you will be well on your way to becoming a better options trader.
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