- I bought an American put on a stock in a retail brokerage IRA, where I can't sell short or write uncovered options.
- The put is ITM and has served its purpose for hedging.
- The put is thinly traded and nobody is making reasonable bids.
- The put still has significant time value, so I don't want to just exercise it and give up that value
How can I "synthetically" sell the put (subject to the constraints in #1)?
One thing I could do is to "delta" buy and delta-scale a long position in the underlying. If I do this during the time to expiration then in expectation I will realize the time value of the put.
The problem with this strategy is that it leaves me exposed to volatility: If the realized volatility is lower than the current implied volatility then in expectation the realized value of the put will be lower than the fair value at the moment I wanted to sell it.
Is there a practical way to hedge the volatility exposure, subject to the constraints in #1?
Or, is there a better way to synthetically sell the put?