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I bought a 12/06/19 $202.50 call option on Alibaba for $2.45. The call is currently trading for about 25 cents and I have lost almost all my money because BABA has dropped to about $194.

Is there a way to salvage this call money? Should I place a Sell Call order and if so, how much money could I save?

Bob Baerker
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Raj Chayz
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2 Answers2

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When you buy an option, the premium is a "sunk cost". There's no way to get that premium back. You have to hope that either the option appreciates in value so you can sell it, or that the profit at expiry is enough to cover the upfront cost.

If you now have an option that's basically worthless, you have two options: keep it and chalk it up to a lesson learned (or hope for a rally), or sell it at the current bid price. You could also put in a limit order higher than the current bid, but if the price of the option doesn't hit your limit order it won't sell.

Unless your underlying stock has a massive rally to get to 204.95 (the strike plus your premium), this will be a losing trade.

D Stanley
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@D Stanley spelled out the possibilities for your trade. Unless lightning strikes, this position is a goner.

A useful adjustment to be aware of for a losing position is the Long Call Repair Strategy. In short, you convert the long call to a vertical, lowering the break even point. IMO, it should be done if you can do this for no additional cost.

The adjustment won't help you now and it wouldn't have helped you with this position even if you took it weeks ago when the options still had some time premium remaining, but it would have improved your chances of salvaging this position.

This type of Repair can be used for stocks that are underwater. In fact, it can also be for a new position to enhance return.

For example, if you:

  • Buy 100 shares of BABA today at $193.80
  • Buy one Jan 10th $192.50 call for $8.30
  • Sell two Jan 10th $200 calls for $4.55 each

You'd receive an option credit of 80 cents (lowering your cost basis slightly)

You would net $208.30 for a $14.50 gain (7.48%) as long as BABA was above $200.00 on 1/10.

That's a $14.50 gain if there's only a $6.20 gain in BABA.

Note that the repaired position is a combination of a covered call and a vertical spread. There are no naked positions involved.

Bob Baerker
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