I managed to invest in ASTS very early on before the meteoric rise and the investment has paid off massively currently. I still believe it will go up but I am unsure how much. Currently, I wanted to start protecting my gains. So initially I came up with three choices:
- Sell some shares and make a profit.
- Buy a protective put options.
- Use Debit Put Spreads.
I am not keen on selling my shares because I like the stock and want to be a long term shareholder because I believe it will be going up in the future. I mainly want to protect my downside in the short term because I am shocked by how quickly it rose and I am worried about it coming down some in the short term. I do not believe I will be able to perfectly time the sell for some profit, and then buy back the dip. So I was not happy with option 1 for this reason.
So I considered buy some protective put options but realized a potential flaw to this approach. Last week when it was in the $20 range, I bought a weekly put option to protect the downside. The stock instead rose too quickly and now my new gains are left unprotected, so I would need to buy another put option as it rises to continuously protect my gains. But during this process the put options are becoming more and more expensive. And this issue of the stock rising too quickly is becoming a problem for me because I am lost in figuring out how to protect my gains in the short term. If I buy a put option for end of September for $30, it would be very expensive, but more importantly, if the stock keeps rising my new gains are left unprotected once again leading me to keep buying even more expensive protective put options due to the rising IV.
As a result, for the first time ever, I thought maybe the third option of using debit put spreads would help me protect my gains in the short term. Once again, I like the stock and want to keep it for the long run, and since I want to save my current gains, I thought with debit put spreads, I could at least protect a portion of my gains while also not having to spend excessive amounts every week to buy protective puts.
I wanted to know if my choice of going with a debit put spread is the best way to protect my gains in the short term or if there are better alternative to protecting huge gains.
Thank you for helping me out.
Dilemma of hedging for massive gains
byu/Actual_Persimmon_964 inoptions
Posted by Actual_Persimmon_964
6 Comments
You picked every option except sell out of the money covered calls
“Protect my new gains” that ain’t how this works bro. lol
There is no solutions only trade-offs. 90% percent of the time , my trade-off for protecting shares is a neutral-collar. This is just a pause button for me, as I make nothing , and lose nothing. AKA if the shares lose then the options win , and vice versa.
There no to much capital you have to put up maybe .10 cents or so, sometimes a credit. This is good when you want to sleep at night.
I found that the put route i use a bunch of rules. Put debit spread is not that bad if you like those trade-offs. Don’t look at whats best, compare cost vs. more protection .
The debit put spread will cost less than buying only a put but limits the downside protection, but since you’re generally bullish, it makes sense.
Since you like the stock, what about a stop loss with a sold put (csp) below it? You’d lock in the sell price, but then possibly repurchase at a lower price. If the price continues to rise, you just keep the csp premium.
The downside, as always with stops, is the price could dip to trigger it but then take off to the upside again, but you’d at least still have the csp premium.
Do you believe ASTS will be below 30$ a year from now?. If not, there is no reason to protect unrealized gains. Unless you foresee a future in which you will need to sell or your shares in the short term.
You could also buy a butterfly – OTM butterflies are low debit / high reward trades because they require you to get the direction and magnitude right for a big payout. The more OTM, the cheaper they are. If you have huge gains, then you can probably center one on your entry for very little and it would have a powerful hedging ability in the event of a reversal. Or target a key support level if you think that’s more likely. Sell two legs where you want max payout and then buy one leg x points above and x points below. Play around with the risk analyzer to see what you like.
This is the hedging strategy I like when I am up big on a trade and am worried about a sudden 180. I’ve found most of the time trends last much longer than you expect and your hedge tends to be a waste – butterflies let me feel hedged for very little outlay.