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training_data/curated/text/0caedd1dc7eb918f562899f76f91662ffb3b1ea6fc53529ae71e7cabe411d1c7.txt

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+for the move to reverse itself. If she didn’t have the trade on now, would she
+sell ten 65 puts at 1.07 with Johnson & Johnson at $65? Based on her
+original intention, unless she believes strongly now that a breakout through
+$65 with follow-through momentum is about to take place, she will likely
+take the money and run.
+Stacie also must handle this trade differently from Brendan in the event
+that the trade is a loser. Her trade has a higher delta. An adverse move in the
+underlying would affect Stacie’s trade more than it would Brendan’s. If
+Johnson & Johnson declines, she must be conscious in advance of where
+she will cover.
+Stacie considers both how much she is willing to lose and what potential
+stock-price action will cause her to change her forecast. She consults a
+stock chart of Johnson & Johnson. In this example, we’ll assume there is
+some resistance developing around $64 in the short term. If this resistance
+level holds, the trade becomes less attractive. The at-expiration breakeven is
+$63.25, so the trade can still be a winner if Johnson & Johnson retreats. But
+Stacie is looking for the stock to approach $65. She will no longer like the
+risk/reward of this trade if it looks like that price rise won’t occur. She
+makes the decision that if Johnson & Johnson bounces off the $64 level
+over the next couple weeks, she will exit the position for fear that her
+outlook is wrong. If Johnson & Johnson drifts above $64, however, she will
+ride the trade out.
+In this example, Stacie is willing to lose 1.00 per contract. Without taking
+into account theta or vega, that 1.00 loss in the option should occur at a
+stock price of about $63.28. Theta is somewhat relevant here. It helps
+Stacie’s potential for profit as time passes. As time passes and as the stock
+rises, so will theta, helping her even more. If the stock moves lower (against
+her) theta helps ease the pain somewhat, but the further in-the-money the
+put, the lower the theta.
+Vega can be important here for two reasons: first, because of how implied
+volatility tends to change with market direction, and second, because it can
+be read as an indication of the market’s expectations.