Trade Adjustments

Long Call - looking for stock to go up or volatility to go up (making option more valuable)

Adjustments

Add long put: making the trade a strangle or straddle, increases debit, sentiment is that stock is now possibly bearish and/or volatile

Roll option: buy back the call and purchase another call further out; adds time value (lower theta), (higher vega), allows for the potential to sell covered calls, adds to debit

Add short call: bull call spread (still bullish but reduces debit), or bear call spread (bearish or stagnant view), reduces debit or converts to credit

Long Put - looking for stock to go down or volatility to go up

Adjustments

Add long call: making the trade a strangle or straddle, increases debit, sentiment is that stock is now bullish

Roll option: buy back the put and purchase another put further out; adds time value (lower theta), (higher vega), allows for the potential to sell covered puts, adds to debit

Add short put: bear put spread (still bearish but reduces risk), or bull put spread (bullish to stagnant view), reduces debit or converts to credit

Short Call - looking for stock to go down or volatility to go down, unlimited risk

Adjustments

Add long call: bear call or bull call spread; lower price or same price, bullish. Higher price, bearish (lowers risk)

Roll option: buy back call and short another call at a higher strike; pick up time value, possibly avoids assignment, most likely adds to debit

Short Put - looking for stock to go up, risk is the difference between the strike price and zero, minus the credit

Adjustments

Add long put: bear put or bull put spread; higher price or same price, bearish. Lower price, bullish (lower risk)

Roll option: buy put back put and short another put at a lower strike: pick up time value, possibly avoids assignment, most likely adds to debit

Collar Trade - sluggish to bullish trend

Long the stock, covered call, protective put

Adjustments

Bullish: sell long put (not needed), or turn into a bull put spread by selling put, if in jeopardy of being assigned onon short call, back short call and sell further out of the money

Bullish, then bearish: by another protective put if you have sold original put, roll short call to a lower strike price

Bearish: sell long put on bounce (IV drops), buy protective put further out, and roll short call to a lower strike price

Call Spreads

Adjustments

Determine why the trade needs to be adjusted, make sure you have necessary funds

Bear call spread: if the equity turns bullish and short call goes in the money, buy a protective call, roll up and out to the new resistance price

Bull call spread: if very bearish: turn into bear call spread

Stagnant: turn into calendar spread

Call calendar: if stock goes up strongly, roll short call OTM

Put Spreads

Adjustments

Protective put: if bearish, close when equity reaches support and begins to turn up (30 days or more to expiry, if less than 30 days, roll out to at least 45 days to expiry to buy more time until support is hit, if stagnant, close the long put to capture remaining premium, or adjust to put calendar (need 3 months until expiration), if there is a bullish trend, sell put or adjust to bull put or bull put calendar

Bull Put Spread: may use to own stock and get a credit on long put when you sell. If bullish, close trade early for profit goal, if stagnant, allow options to expire worthless, if short put goes into the money, close at a profit, or roll the short put OTM, take stock and turn into a collar trade. If bearish, turn into a ratio back spread by adding a long put.

Put Calendar: stagnant, keep shorting against long put, or let short expire and close trade. If bearish and short put goes into the money, close trade if profitable, or roll short put OTM. If short put goes in the money, roll to OTM. If bullish, close for a profit, or adjust to bull put spread (very bullish) or bull put calendar (sluggish)

Bear Put Spread: if bearish, close at a % of ROI goal, if stagnant, turn . into a put calendar spread (need three months on long put). If bullish, add protective call or adjust to a bull put spread

General Adjustment Considerations

  • Set exits in advance
  • Capital necessary to adjust
  • Not too soon or too late
  • Leave enough time to adjust
  • Know why you are adjusting
  • When you change the nature of your trade, know your new adjustments

Processing your request...

This may take a few moments...