Profit when a Big Break or Break down occurs, via being able to close out part of the Spread, and Hold an outright Long Call or Put to capture max Upside or Downside ? For Example: Lets say XYZ stock is trading at $70 And based on my analysis , I am predicting XYZ to make a BIG move to the Upside ( potential upside Target of $80 ) Well, instead of buying the Outright $70 ATM L Call option on XYZ for say $7 Can I instead do something like a BullCall debit spread of say the $67.50 / $72.50 spread ( so a $5 spread ) What I'm looking to do, is a way to get Long an Outright Long Call ( in this example for " Cheap " I.E. the Debit Spread, BUT at the same time, having the Potential to capture most of the Upside move, if the Stock does go on to the $80 price target . Could I Buy-to-Close the $72.50 sold Call ( once the stock moves past the $72.50 price Point , and then just Stay/Be Long the $67.50 Call I bought via the intial BullCall spread that I put on ? I am assuming that , even if the stock moves above $72.50 ( say it happens 1 week from the day that I put on the BullCall trade ) that enough time will NOT have passed for me to Buy-To-Close the Sold $72.50 Call for BreakEven ? It would actually cost me money to Buy to close the $72.50 call correct ? If this is the case, then what would be a Happy-Medium amount of time till Expiration that I would need to initiate this sort of trade/Strategy , in order to Buy to close the Sold calls for near nothing , while still having enough time left for me to profit for the times that the BIG moves does occur that I'm expecting ? Maybe buy 3 month till Expiration Debit spreads, and so Long as within 1 months time from the time I put the trade on , that the stock is above the sold Call, I should technically be able to buy it to close for nearly nothing .... While still having two months left till expiration to capture and profit from the rise in the Stock to the $80 Price Target ? Thank you so much for the time and help , Hopefully my question makes sense. I am mainly looking at this strategy or one that may suit what I am looking to achieve better ...... For the sole purpose of being able to Get Long or Short outright Calls and Puts on stocks " Cheap " via initiating DebitSpreads, with the sole Intention being to buy to close the Sold call or put of the Debit spread, to then hold a position in the outright long or short calls and puts on Mainly the .... 1. Expensive stocks ( $70 + ) 2. Stocks who have wide Bid x Asks via their spreads on their Options Thanks so much
I looked up BackSpreads last night. This might be the exact Strategy I'm looking for ( so Long as it's " cheaper " to do the BackSpread vs an Outright Log Call or Put ..... Stock/it's Options dependent Regarding BackSpreads..... Is there a quick and easy way that I can plug in the Strike that I sell and the Strikes that I buy, and have an Options calculator Automatically plot out what my Max Loss, Partial Loss, and 2 BreakEven points will be ? Just trying to save some time on running all of the numbers for each variable in any given BackSpread trade. Thanks so much again for all of the help
Can you kindly explain the reasons? If OP is right the stock will go up to around $80 at expiration, would the $80 call be not profitable and the $75 call only marginally so?
Perhaps the underlying reaches $80.00 much sooner than expected. Perhaps the underlying gaps much higher than $80.00 before expiration. Both scenario's are very common.