Someone sent in a trade they have on asking for some input, it's a covered strangle in TDOC. Overall, there are obviously, LOTS of questions that need to be answered for these. Below is their Q and overview:
And here's a chart for context:
A few notes to consider in these kind of scenarios:
Overall portfolio risk assessment, how does this position fit with the rest of the portfolio (he mentions several CSPs are underwater currently - confirming our original portfolio plan is important)
He outlines his trade allocation but no scaling strategy. I like to have my scaling plan in place before entering the trade (for example, after a XX% move up or XX% move down, re-assess and review scaling opportunity).
With our trade underwater, we MUST review the position. Since this is an individual stock, that we may be looking to allow assignment on, confirming our disposition towards the stock is essential.
There are two main questions I'd look to answer:
1. Confirm or deny original trade hypothesis;
2. Outline remainder of trading plan based on updated information
My main inputs (if this were my trade):
Short and mid-term TA looks bearish. I would not be adding any additional risk to the trade until some confirmation of support.
TDOC doesn't pay a dividend, I wouldn't be eager to take assignment and hold stock - I'd continue to trade the options as long as viable.
Adding risk is an effective management tool, but has diminishing returns. It's important to NOT through good money after bad simply trying to execute a failed plan.
This video dives into my analysis and management decision cycle (for those interested):https://youtu.be/xoLFpXTPSQE