Re: Cashing in my options
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now thats the best idea yet. nice job pete.
if you are absolutely neutral on the stock, what is the optimal move here? sell calls on the same strikes and take the premiums risk free i think, right?
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if you think the stock and its derivatives are optimally priced, the optimal strategy in terms of absolute EV should still be holding since it minimizes transaction costs. in terms of maximizing sharpe ratio you would want to diversify and i suspect the best way to do that is by selling calls.
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if you are negative on the stock then sell puts + short stock + sell calls on strikes?
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if i've thought this through correctly, selling puts and shorting the stock should be equivalent to just selling calls. so whether you're bearish or bullish on the stock shouldn't really matter in terms of the optimal hedging strategy. the difference is that with the sell put/shell short stock strategy you're essentially borrowing money now with the intention of paying it back when you finally exercise. that should have implications regarding the margin requirements which might be different for options and short selling, and i have no idea which strategy would end up working out better.
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if you are positive on the stock then hold all and do nothing?
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yup, but of course you want to consider your portfolio sharpe ratio again... if you're bullish you'd naturally be holding more than you would otherwise.
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