Newbie going further into Options

[bellenuit]

I have dipped my toes in the water with options trading by selling covered calls in Apple (AAPL) through Interactive Brokers over the last few months. I am now looking at advancing my trading by hopefully using options to make some additional money from a sell/buy of the same stock.

Without going into too much detail on my situation, I have a large capital loss from the GFC that I can clear at anytime by selling some of my holding in AAPL shares which have a substantial unrealised capital gain. When you have carry forward CGT losses, the ATO requires you to keep all your tax records until 5 years after you eliminate all carry forward & current year losses. I want to make this year the year I go positive, so that in 5 years I can get rid of all the old records. But I also want to maintain my share holding in AAPL, as they provide good dividend income.

Last night AAPL closed at USD 163.35.

Because AAPL is highly liquid, I could divide my holdings into 100 chunks and place simultaneous BUY and SELL market orders for 100 shares of AAPL. The SELL would realise a big capital gain on my existing holding and the BUY replaces that holding at a new cost base of whatever the BUY was. Being very liquid, I would expect the BUY to cost me no more than USD0.01 per share more than the proceeds from the sale, and broker costs will just be USD1.00 each way. So overall, I could do such a transaction at a cost of about USD3.00 and repeat until I have eliminated my carry forward losses.

But looking at last nights Options closing prices, I see that a Sep 1st 162.50 Call last traded at 1.34 and the Put at 0.53.

If these are indicative of the prices when I come to implement my strategy, this would suggest that I could sell that Call Option for $134 and buy the Put Option for $53. If the underlying price stays above strike at expiry, my Call should be assigned and I can execute my Put. If below strike, both options expire and I repeat again a few days later. IB Options trades seem to be around $1.10 per contract, so this strategy would net me about $80 whether they execute or expire. If they execute, I have achieved my goal for that 100 share chunk and repeat for the next one, otherwise I redo until successful.

Does that seem like a workable strategy. I have noticed that the last traded price of Puts for AAPL were less that the equivalent Calls for only those strike prices that were less than the current spot price (for both Sept 1st and Sept 8). Calls were priced less than Puts for these dates when the strike was more than the spot (which obviously wouldn't work for this strategy).

Any other suggestions how I can eliminate my CG carry forward losses while making money from Options trading at the same time.

 

[cynic]

If the call is assigned, you probably won't want to execute the put, because that would mean selling double the obligatory number of shares, at a price inferior to the market!

I presume that you are already aware that selling a call and buying a put, at the same strike level, is tantamount to creation of a synthetic short position!

 

[bellenuit]

If the call is assigned, you probably won't want to execute the put, because that would mean selling double the obligatory number of shares, at a price inferior to the market!

I presume that you are already aware that selling a call and buying a put, at the same strike level, is tantamount to creation of a synthetic short position!

Of course you are right. I've got my buys/sells calls/puts mixed up. Silly me. For a moment I thought Buying a Put gave my the right to buy back the stock at the strike price, but of course it only gives me the right to sell. So it's really a potential double sell.

Is there any strategy that might work?

 

[cynic]

Of course you are right. I've got my buys/sells calls/puts mixed up. Silly me. For a moment I thought Buying a Put gave my the right to buy back the stock at the strike price, but of course it only gives me the right to sell. So it's really a potential double sell.

Is there any strategy that might work?

Perhaps, but it could get messy.

From what I understand, you are looking to force partial realisation of gains on your positions, in order to clear capital losses from prior years, whilst retaining ownership of the same number of shares.

There are option spread strategies, that might potentially serve to siphon out some of the gains, but they would need to be carefully implemented and monitored, and there's usually at least one way in which such strategies can backfire.

Given that you want to end up retaining ownership of the equivalent number of shares, some additional income might be derived by creating "bull put spreads", or "bear call spreads", where the inferior strike level is bought and the superior strike is sold, the downside being that in the event of exercise, this can result in realising a loss equivalent to the difference in strikes, plus the cost of the bought options, minus the cost of the sold options.

Alternatively, provided that there is no violation to any taxation rules, it might be safer (and easier) to perform an alternating series of sales and repurchases (or vice versa) of the actual shares.

Another option that one might consider, could be the trading of an inversely correlated instrument. Again the taxation rules may require careful consideration.

 

[Sharkman]

you could consider zero cost diagonal call spreads. sell front month ATM calls, buy the same number of OTM calls further out (eg. 3 month expiry) at a strike where the premium is roughly the same.

it doesn't make you any income initially, as the name would suggest, but you retain upside exposure even if the stock gets called away. you start collecting premium once the front leg drops off, by selling the next month (or even the weekly) calls if the front leg expired worthless, or sell puts if your stock got called away, and you can keep repeating this until the back leg expires.

if the stock doesn't move too much you can collect quite a bit of premium doing this as theta, delta skew, and probably also time skew will be working in your favour with this sort of spread. it will not give you any downside protection though, but it didn't sound like you were particularly bearish on the stock to begin with, in which case that shouldn't be much of a concern.

 

[bellenuit]

Thanks Cynic and Sharman. I'll research those strategies.

 

[cutz]

Haven't had time to properly assess your opening post, sounds like you want to hang on the stock but crystallize a capital gain, earn some premium along the way. Keeping it simple I would suggest a stock/option combo, sell the stock and short ITM naked puts.

 

[History Repeats]

you can do credit/debt spread. BTW you not ready to use options yet learn about options first, would be my advise or demo trade it.