oldarmy1 said:Bob Knights Liver said:
If you had 4 contracts at a $110 strike and the stock goes to $114 instead of having to wait for the market to open you could short 400 shares at $114 and then lock in that $4/share instead of just hoping it stays up there when the market opens.
Correct. There are so many times a stock spikes or tanks in premarket or post market and by the time markets open they have equalized erasing a lot of the gains.
We had AMC $2.50 LEAPS that cost us $1.25 for the right to buy the shares at $2.50 ANY TIME between now and January 2023. Our plan was to count on the opening of the economy to give an initial bounce, to sell as low of % of our calls as possible to recapture our investment and then let the rest hopefully move higher.
It worked with the announcements of opening sending AMC to over $5 allowing us to sell only 28% of the Calls to recapture our investment. But then reddit hit and the stock jumped to over $25 premarket a few days later. Obviously we can't trade options premarket so your choice is to agonizingly wait for the open and hope it stays up there (it didn't - it fell to $16 and below) OR since your calls give you the right to call out shares at $2.50 what you do is SHORT AMC at the premarket price of $26.20.
Instead of covering that short by buying shares in the market you just call out your $2.50 calls. Your total cost for the shares was $2.50 + $1.25 premium so $3.75. Your short was say $25.75. That net then is $22/share.
For every 1 call you paid $125 for you made $2200. Of you didn't short it then you would have sold your leaps at the open for around $17 or $1700/share. Not bad but not nearly as good as $2200. 100 calls brought in $220k in under a week!
This makes so much sense after I thought about it but it blew my mind the first time I read it. It makes a ton of sense though.
