What is everyone's opinion/advice on this scenario:
(I'm using arbitrary numbers so please don't go by them)
Let's say you have an options position ATM for 10 contracts and the position moves against you and you are now $5 OTM. It is a front month position. Is it better to keep that position if you believe the stock will go up, or would it be better to roll down the strike and purchase less contracts?
In other words, if you put up $5k for a position and now it's worth $4k, is it better to take the $4k and purchase strikes ATM, but a less number of contracts? For arguments sake, let's say with the $4k you can purchase 7 contracts versus the original position of 10 contracts for $5k.
Sorry if I'm not explaining this clearly - I can't type or communicate on any rational level today.
Thanks.
if you think the price is still going to go back up and be ITM then keep the original position. you get more deltas for your money the further out of the money you go
If you believe with conviction, I would say hold your current position. The bid - ask spread and other transactions costs retail investors have to pay are often substantial.
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