Cost basis of the short stock is $40.
Selling the $60 put for $21 obligates you to buy the stock at $60. It's a covered put but in term of risk, you're uncovered above $61.
The P&L is:
- Maximum profit at expiration is $1 if RCL is under $60 at expiration unless you are assigned early, which is a good thing.
- Break even is $61
- Losses begin above $61 and you lose dollar for dollar per point of up move
On an expiration basis this doesn't seem like a bad position if you believe that RCL won't rise 20 points.
- Potential problem before expiration?
If RCL rises sharply before expiration, the put's delta will decrease and your position will increasingly lose money. It's no big deal in the $40's but in the $50's, it starts to rack up.
You can do guesstimations based on current and future delta but because delta isn't linear, it's just a loose approximation. A good charting program would provide a clear analysis of the what ifs at different times and prices of RCL. An even better one would allow you to vary the IV. Since I can't graph this for you, here are some random guesstimates:
Let's assume that this is a two week put. The put's delta is about 80+ (position delta is -20). Assume that IV remains unchanged. A week from now at $53, you're down $200. A week from now at $60, you're down $500. Not looking pretty. How do you adjust the position at that time if that has occurred?
The short answer? You sold naked $40 calls, you were assigned and now you're short the stock at $40. The current price is $40.22 so you're down 22 cents. You did not mention the credit received for the short calls. If the credit received was greater than 22 cents then your net position is ahead at $40.22. Is it worth it to sink your teeth into this for another $1 of premium in this market? That's your call or in this case, your put :->)
PS My additional two cents is that in this volatile environment, I think that chasing premium is better done with spreads unless your intentional goal is to end up long or short the underlying.
