Saying goodbye to RAX

For a trader that utilizes options frequently, there are situations that occur that can cause frustration. Some examples are:

  • You own a Straddle and the stock goes sideways until expiration.
  • You sell premium that seems so “safe” yet you find yourself fretting over the position and counting the days until expiration, with fingers crossed.
  • You own a long position and sell calls against (covered) only to see it run past the short call strike – thus capping your return. Pullback please !!!

There are of course many more scenarios that can be put in this list, but I want to highlight the last one. I had a long position in RAX (Rackspace) and had put on what is called an April 50/55 Collar (short an upside call and buy a downside put). My goal was simple, to protect against a downside move in a way that didn’t require constant management of the position.

I found myself with the price moving up through the short call strike (and beyond) thus capping the gain. Over the course of several weeks, Mr. Price gave me a few chances to “uncover” (buy back the short call) but I elected to let the position run its course.

Due to this, my long position in RAX will be called away as price exceeds the $55 strike price, and the downside put expires worthless.

3 thoughts on “Saying goodbye to RAX

  1. I’ve been there myself Derald. I’m sure you had a reason to initially pick the 55 strike so bank the profits and move on to the next winner! You’ve an excellent trader who will run into this again. If you didn’t you wouldn’t be pushing the envelope for better returns.

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