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What's bouncing around in my mind is Staged Shorting and I'll use BIDU as an example:
Normally I'd short the entire amount of my contracts the moment I think it's going against me. If it doesn't I have 100% of my short going against me and it can quickly lose me more than I've been protecting.
I think on Saturday morning it was about $160 when I sold 10 x $150 NPs. The next day it dropped 3%, then the next day it dropped 3% and so on. What if I'd shorted 250 cfds each time it hit 25% of the buffer until it reached my strike where I would short the last 250 cds and thus be 100% covered at that point.
If it bounces up from my first short, it's not too bad because it's only a quarter bounce and would take a lot longer to lose me more than I'm protecting but I'd have a stop on that first staged short.
If it drops to the next 25% level, I would repeat. As above. But, the first stage would have a tidy profit, so the 2nd stage could have a wider SL. If it reaches the 3rd stager point, repeat, except 1 has a really nice profit and 2 stage has a tidy profit so 3 could be really wide.
If it hits the strike, repeat. If it blows through we're 100% covered, and we've probably doubled our profit after fees from all the stages and thus we actually want it drop to our strike if anything.
Stage 0: Sell 10x $150 Naked Puts when BIDU was at $160>
Stage 1: Short 250 CFDs at $157.50 (haven't picke the SL yet but add a figure here)
Stage 2: Short 250 CFDs at $155 (insert SL). Profit from S1= $595 (inc brokerage)
Stage 3: Short 250 CFDs at $152.50 (insert SL). Profit from S1+S2=$2490 (inc brokerage).
Stage 4: Short 250 CFDs at $150. Profit from S1+S2+S3= $3660
The big risky one is stage 1. Let's say it drops down to and activates then rises back up to the open price and your short is still active (no sl just for example). The Sell price for the $150 NP was .47 which is $420 profit (generally). If your stage 1 short goes up $1.70 to $159.20 that's all your NP profit gone and you have to SL before then. But what if the volatility meant it went back down again because $1.70 isn't that much of a swing with BIDU , you've lost all your profit and still not covered on a the trip down. So it def needs some thought.
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