Cool video. Diagram at 5:00 is kind of confusing because the "equation" written out above it is flipped from the two puts shown on the diagram. Great video, still learned a lot
Sure! This is what we call a double diagonal here's a segment on this: www.tastytrade.com/tt/shows/market-measures/episodes/double-diagonal-management-11-04-2013
This might be obvious but what happens to the long position? Do you close it? Let it decay? And what happens if they exercise early? This just happened to me but I had 2 trades happening with a regular covered call and a poor man's so my brokerage just took out the regular covered call ? I guess you exercise the long option?
Hi Mike, I was looking for your PMCC video you mention in this vid, I went to shows on TT and your board but there don't seem to be any 2017 vids listed...all I found was stuff starting from 2016 and going back in time 14 pages of vids from there.
Ideally we go 70-80 delta ITM and sell a put that covers the extrinsic value cost of the long option, but if that's not possible we shoot for a debit that's around 75% the width of the spread, so if my strike are 10 points apart, I want to pay no more than $7.50.
I dont see any poorman's covered call effect in tasty works ... it needs the same buying power as normal covered call strategy... Also it doesnt have an screener , and stop-loss for naked calls/puts.
I can only watch so many of these types of videos in a row before I need to watch something silly like a dog or cat video. I like the content but it forces me to think carefully about various option strategies, spreads, combinations, time factors and profit calculations - taxing on the brain.
Exercise risk is low if extrinsic value in the ITM option is high - even if you are exercised in a strategy like this, you still have the long put that acts as protection against the short shares you'd have if the short put was assigned. Either way, if the short put is ITM that likely means the trade is net profitable, even after assignment, but if extrinsic value is high in the short put, assignment risk is low.
@@tastyliveshow But the question wasn't about the RISK of assignment,...the question was what happens when you ARE assigned. You said the Long Leg is protection, but be more specific. Isn't the correct answer to that, "The broker will Exercise the opposite Leg to "cover" the obligation"??? Anything left over afterwards is profit? The secondary question could then be, "What if it doesn't completely cover the obligation?". Then the remainder comes out of your account cash right?
@@prw956 well if you get assigned it means that you'll need to buy the shares for 85$ but you have a long put that allows you to sell the shares at 100$. You answered it yourself, in most case your broker will automatically cover it with the long put. But if it doesn't, it wouldn't allow you to do the trade without a margin for the short put. So either case you're good
@@prw956 I think one of the most important hurdles that new option investors need to get over is assignment. What you have to remember is though that ANYTIME you are assigned you will ALWAYS keep the ENTIRE premium (extrisinc value) you initially received. So in terms of the extrinsic side of things YOU WON. The ONLY loss you can incur is INTRINSIC value on the short option.....but you are STILL GAINING that on the ITM Long put option. So what does that look like? Lets assume you do not have funds to cover purchasing 100 shares on the short side...... The next day you wake up you will have a negative balance in your account with a position of 100 shares bought at the short Put Strike price. While this LOOKS bad it is not because your 100 shares has value still. All you have to do is close your position in 1-2 days in order to avoid account call. The most you will be down is the intrinsic value. You now have choices/options on what to do next: 1) Close trade: Sell-to-close remaining Long option 2) Keep trade going: Sell a new lower put if you think price will go lower OR Sell a ITM Put at the original stike pice (if you think price will go back up) At the end of the day, YOU STILL KEEP the original extrinsic value...and you will have time to decide what to do next.
A covered put is when you short shares and then sell puts. That's the unlimited risk one. With a PMCP, that's when you can only lose the premium from your long put.
Cool video. Diagram at 5:00 is kind of confusing because the "equation" written out above it is flipped from the two puts shown on the diagram. Great video, still learned a lot
Hi, does the long position in the PMCP have to be ITM or can both options be OTM as long as the short position is further OTM?
Can you combine a PMCC and PMCP to create a market neutral strategy ?
Sure! This is what we call a double diagonal here's a segment on this: www.tastytrade.com/tt/shows/market-measures/episodes/double-diagonal-management-11-04-2013
This might be obvious but what happens to the long position? Do you close it? Let it decay? And what happens if they exercise early? This just happened to me but I had 2 trades happening with a regular covered call and a poor man's so my brokerage just took out the regular covered call ? I guess you exercise the long option?
Hi Mike, I was looking for your PMCC video you mention in this vid, I went to shows on TT and your board but there don't seem to be any 2017 vids listed...all I found was stuff starting from 2016 and going back in time 14 pages of vids from there.
Sorry about that! Here is the segment on tastytrade: bit.ly/2vsNuBQ
We will be adding it to UA-cam shortly!
How deep iITM put? And How far out the money ?
Ideally we go 70-80 delta ITM and sell a put that covers the extrinsic value cost of the long option, but if that's not possible we shoot for a debit that's around 75% the width of the spread, so if my strike are 10 points apart, I want to pay no more than $7.50.
Super sir
I dont see any poorman's covered call effect in tasty works ... it needs the same buying power as normal covered call strategy... Also it doesnt have an screener , and stop-loss for naked calls/puts.
I can only watch so many of these types of videos in a row before I need to watch something silly like a dog or cat video. I like the content but it forces me to think carefully about various option strategies, spreads, combinations, time factors and profit calculations - taxing on the brain.
Umm.. For all of these videos... What happens when they just suddenly exercise on you?
Exercise risk is low if extrinsic value in the ITM option is high - even if you are exercised in a strategy like this, you still have the long put that acts as protection against the short shares you'd have if the short put was assigned. Either way, if the short put is ITM that likely means the trade is net profitable, even after assignment, but if extrinsic value is high in the short put, assignment risk is low.
@@tastyliveshow But the question wasn't about the RISK of assignment,...the question was what happens when you ARE assigned. You said the Long Leg is protection, but be more specific. Isn't the correct answer to that, "The broker will Exercise the opposite Leg to "cover" the obligation"??? Anything left over afterwards is profit? The secondary question could then be, "What if it doesn't completely cover the obligation?". Then the remainder comes out of your account cash right?
@@prw956 well if you get assigned it means that you'll need to buy the shares for 85$ but you have a long put that allows you to sell the shares at 100$. You answered it yourself, in most case your broker will automatically cover it with the long put. But if it doesn't, it wouldn't allow you to do the trade without a margin for the short put. So either case you're good
@@prw956 I think one of the most important hurdles that new option investors need to get over is assignment. What you have to remember is though that ANYTIME you are assigned you will ALWAYS keep the ENTIRE premium (extrisinc value) you initially received. So in terms of the extrinsic side of things YOU WON.
The ONLY loss you can incur is INTRINSIC value on the short option.....but you are STILL GAINING that on the ITM Long put option. So what does that look like? Lets assume you do not have funds to cover purchasing 100 shares on the short side......
The next day you wake up you will have a negative balance in your account with a position of 100 shares bought at the short Put Strike price. While this LOOKS bad it is not because your 100 shares has value still. All you have to do is close your position in 1-2 days in order to avoid account call. The most you will be down is the intrinsic value.
You now have choices/options on what to do next:
1) Close trade: Sell-to-close remaining Long option
2) Keep trade going: Sell a new lower put if you think price will go lower OR Sell a ITM Put at the original stike pice (if you think price will go back up)
At the end of the day, YOU STILL KEEP the original extrinsic value...and you will have time to decide what to do next.
why do people keep saying the risk is unlimited. no the risk is literally the amount of the premium lol
A covered put is when you short shares and then sell puts. That's the unlimited risk one. With a PMCP, that's when you can only lose the premium from your long put.