Question: Amazon call

Discussion in 'Learn how to trade or invest by asking questions' started by flatlander, Mar 20, 2017.

  1. flatlander

    flatlander New Member

    Hi, looking for some advice. I bought a call with a $800 strike price for june 16, 2017 expiration. Initially i was in the money but now due to time decay i am down. What are my options other than to sell it and take a bit of a loss, and the dreaded let it expire worthless.
    If I am correct, I can exercise the option and buy the stock for $800, then turn around and sell it for market value (currently $856), but when I do that I lose the premium I paid for the option. If I did that I would still be losing money.
    What other alternatives are there? Thanks.
     
  2. Acstudio

    Acstudio Well-Known Member won penny contest 44x won weekly contest 40x won weekly contest 41x simulator winner 20x


    Sorry for the late reply, just saw this. Ye you could have been selling higher strike calls against it in the front months at at least in the month your long call is in. That way you are collecting some of the decay to offset what you are losing on the long call. This requires no additional capital and increases your probability of profit as it reduces your cost basis on the decaying strike. For me I would never just buy a call...as it is probable that what will happen is what you experienced...you got the direction right and you're still losing money. If when putting on the trade you bought the first in the money call then sold an out of the money call against it you would have around a 50% probability of profit and since you were right on direction by now you would have already taken this off for a nice profit.

    You could sell the 880 strike against it right now and at least collect that premium.
    Watch Tastytrade.com to learn how to sell option premium to increase your probability of profit and/or reduce cost basis.
     
  3. Acstudio

    Acstudio Well-Known Member won penny contest 44x won weekly contest 40x won weekly contest 41x simulator winner 20x

    And yes, if you exercise the option early you give up any time value (Theta) left. Also, I don't know how much margin relief you get, but to hold 100 shares of AMZN is really really capital intensive. Unless I had a couple million $ I wouldn't feel comfortable with that much exposure in a single stock.
     

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