Breakdown Short in FSLR

[Steven Place]

Finally looks ready to lose 63 and run to under 60

 

Here’s the trade I like:

Long Jun 60 puts @2.20 or lower

Stop 63.68

 

[Steven Place]

Nice move so far, we’re going to roll this into a bear call spread to remove the majority of our risk

Sell to open Jun 57.50 puts at 1.85 or higher.

[Timothy Blakeney]

Hi Steven,

Could you provide a link or explain how this trade works. I know if the Sell expires worthless you keep the premium but not sure what happens if it gets assigned. My guess is that I would be short the stock at 60 and put the stock to the buyer at 57.50 for a profit of 250 dollars? I noticed you called it a Bear Call spread.

Thanks,
Tim

[Steven Place]

Closing out the trade as there was a failed move lower and I want to take profits.

Buy to close FSLR Jun 60/57.50 bear put spreads for 1.21

[Steven Place]

Tim,

In response to your question.

The way this trade was setup was that it was originally a put buy, but as the trade really started to work for us, we evolved this trade into a bear put spread… I mistyped earlier and said it was a bear call spread but it’s actually a bear put spread.

Learn about bear put spreads here.

Now remember– we don’t have to stay in the trade all the way to expiration, and we really wouldn’t do that on a swing trade.

With respect to assignment on the short option… since you have a long option that is more in the money, you are “covered” if you do get assigned.

But you won’t get assigned. There are three times that happens:

1. If your option is below parity– that means no extrinsic value
2. If you have a short call and the stock is going ex dividend
3. Someone did something stupid

So if you were to get assigned, it would probably be reason #3… which means you’d end up with long stock and a long put. You can then just sell to close the stock, and re-sell the short put, and you also keep the extra extrinsic value from the early assignment.

[Author]

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