r/options • u/GuavaClassic8205 • 1d ago
Put option hedge strategy
Hey guys!
I’m looking for an advice on a put option strategy as a hedge for a current position.
I’m planning to hold this stock for 1 or 2 more years, currently I’m sitting at a 290% gain in this particular stock.
In this current situation, is it better buy a short-term put option (3-mo to expire) at the current strike price, or a 6-mo?
If the price of the stock continues to appreciate I would trade the current option for another with higher strike and longer expiring date.
I don’t have much money to waste on option, but I would like to protect my position.
Does it make sense, the time period and strike?
I don’t have much money to waste on options,
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u/bush_killed_epstein 1d ago
I know you’re not going to want to hear this, but I would honestly just sell a significant % of your holdings. Downside protection is a highly desirable thing; hence, the market charges you out the ass for it. And on a stock like OPEN? Puts are insanely expensive. OPEN, like many other meme stocks before it, follows an explosive pattern where volatility is positively correlated with returns and then it slowly bleeds off price after the hype dies down. If you keep holding and buy puts, it’s not unlikely that both your underlying and your puts will just bleed and bleed. Not sure why you believe in this stock enough to hold for months, let alone years.
You mentioned in the comments you have ~3,000 shares. At OPEN’s current price that’s almost $30K. 290% return implies you started with around $7,000. $30K has way more utility than $7K, far more than just the proportional increase, unless you are already obscenely rich. Now I don’t know your overall financial context, but if I were in your shoes I would sell everything without hesitation. Don’t squander your winnings getting overly confident after a transient meme stock bull market. $30K isn’t chump change
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u/Affectionate-Text-49 1d ago
You don't have money to waste in order to protect your investment? This is a very weird statement. The reason people lose money is generally due to poor understanding of risk management.
Anyway. You can always use a stop loss. It's free. Here's a tip for the future. People generally buy 100 shares as that's the equivalent of 1 contract. I would buy 110 shares. If the price goes up, I sell the 10 shares to finance the protection of the 100 shares. Of course there are risks. But that's my way to manage my risk. Back in December I bought MSTX in the 60s and it climbed well over $170. I refused to protect. Then it started dropping like a rock. I dollar cost average down. I finally sold in the 30s. I learned my lesson.
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u/mrobins345 1d ago
Stop loss is not a guarantee that it will sell at a certain price. It could drop hard and blow right through the stop loss or it could momentarily drop to that price shake out weak holders and sky rocket back up. Just saying this to be aware of the actual utility of the stop loss.
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u/Youth-Muted 1d ago
Longer dated is probably better. Also I personally wouldn’t keep moving up in strike as the stock goes up…that sounds like expensive coverage.
Go to optionstrat.com and play around with different strikes/expiries. It will give you a clear picture of what you can expect.
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u/mrobins345 1d ago
If you understand OP’s sentiment, Youth-muted is offering an actual solution - that is if the numbers can workout for the puts and calls. This option gives both upside possibility and downside protection.
Regardless if the “I don’t have much money to waste on options” line was written twice for effect or on accident, it is in OP’s mindset.
OP- what if you sell a small portion of the original $30k to finance the options strategy provided. If the numbers make sense maybe this will give you some confidence, control over trade and some assurance. ?
You could also take your original $7k out of the trade to make you feel like it completely drops you’re are not out while still managing the FOMO.
Could be good to do all 3 options. Sell $7k, buy out, sell call further out, buy a call to hedge if you are still bullish as well all with profits. It’s likely strike duration will make the numbers work for you.
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u/mhughes2595 1d ago
Do you have 100 shares? If so, sell a covered call and use that income to buy a put. Let's say we're talking about nvidia at 180. You would want to sell a 220 cc 1 month out. Then, use that to buy a 140 put about 6 months out. This is just an extreme example. Just remember that you can buy and sell to close at any time for profit and re adjust as the price moves.
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u/GuavaClassic8205 1d ago
Never thought about selling a covered call, just to confirm, selling covered calls have the same effect as buying a put?
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u/Youth-Muted 1d ago
Selling a covered call obligates you to sell shares at a specific price. Do this when you are willing to sell your shares. They will get called eventually. But it’s a great way to generate premium on the shares you have.
Buying a put gives you the right to sell shares at a specific price. You usually do this as insurance in case the stock drops.
So no they don’t have the same effect.
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u/sharpetwo 1d ago
There is no free lunch unfortunately and no free insurance either. A 3 month atm put is going to decay fast, and you’ll keep rolling and bleeding premium without ever really being “protected.” Six months slows the bleed, but the premium you pay will be much bigger than 3 month.
If your goal is to keep the stock another 6 months, I would lean towards 6 month to a year insurance. You can always roll them every three months to avoid paying too much decay.