top of page

GPS Update, Part II

Gap, Inc. (GPS) Update, Part II Hello Smart Option Sellers! Quick follow-up from the earlier alert about our GPS results. Three emails came in to us soon after. #1 - as mentioned in the earlier alert, if you have not taken action on this trade yet, you can do so today using the same instructions from Friday. The option prices might work out a touch better today due to the weekend time decay. Also, if you want to hang on to the trade altogether, you are more than welcome to see how it plays out. Your call. #2 - A very astute reader reminded me that GPS paid out a nice dividend on 10/30 of $.2425 per share, which I completely forgot about. One of the benefits of holding shares is that you get to collect any dividends the company pays. This works out even better in our favor as it helps to offset the loss even more than what I reported earlier. Now, instead of having an overall loss of $.45 per contract, we can knock that down to roughly $.21 per contract. And if you took the hedge trade from 8/21/19, the overall loss would be roughly $.53 per contract. I'd say in the end, we came out not too badly hurt by this set of trades. Thank you again! #3 - This question: Q: Lee, We’re done with GPS but I’m curious. We got put the stock at 18. What if I shorted the same number of shares in another account (broker) at say 16.80 then sold calls at the money against the long stock to help recoup some loss? Or I could sell deep OTM calls at, as you said in your book Get Rich With Options, a strike that wouldn’t likely get hit and keep doing this until I recoup the loss of 1.20 (18-16.80). Is this legal (“shorting at the box”), long in one account short in another? If so would it be considered “shorting at the box” if I long the SPY then long the inverse ETF such as the SH, then sell an ATM call against the long SPY shares. Not asking for financial advice just asking if I’m overlooking something I’m not taking into consideration. Any help would be appreciated. Your thoughts. A: I understand your rationale, but if you short the same amount of shares that you're long, and then sell calls, you'd be short naked calls which is extremely risky and opens you up to unlimited upside losses. You don't want that. Your long shares would be offset by the short shares, so that position would be a wash for any future moves in the stock (up or down). But if GPS goes on a rally, you're up sh*t's creek because you'll have no protection against your short call options. Now, if you're convinced that GPS will not go anywhere in the near future, then selling naked call options could provide some extra cash. But are you willing to take that risk? Your broker will certainly have a tight margin requirement on that trade. Up to you. Not my cup of tea. That's all for now. Continue to hold all other open positions as-is. Contact us here with fills, comments, questions or concerns. Regards,

Lee Let's Grab That Cash!

Recent Posts
bottom of page