I bought weekly call options for 1,000 shares at the 9.00 strike price for .40 cents. A few minutes later I sold short 1,000 shares of VXX at $9.20.
Assuming I covered my shares next Friday at close (when the option expires), my maximum loss is $200 plus fees, correct? I start profiting if VXX is below 8.80 , correct? Just want to make sure I am not missing something. First time using options - just learning.
You have effectively formed a "protective call". I agree that this is simply a synthetic long put. You luckily got the direction on the call right at time of purchase, therefore made a profit setting up the position. But, next time you may get the direction wrong and take a sizable loss before forming the position. Buying a put makes much more sense.
u should just buy the puts since over the long term this pos inly goes down. I have 100's of jan 2013 & 2014 jan puts I bought at the money when vxx was at 18. I have a 5 bagger so far. easy money trust me. I'm gonna slowly sell them if the market keeps rising and will buy more when it tanks
Assuming expiry date is this week, VXX long calls (10) would be assigned to you tomorrow and it will balance out your long 1000 shares. Monday morning you should no shares/options.. net result $200 plus fees.
Sorry, I meant to specify that the weekly options expire NEXT friday. I would cover the stock and sell the option (assuming it was worth something) at the same time in this scenario. Just trying to make sure my losses are capped at $200 and I am not missing something