I'm moderately bullish on OIH with long Aug 130 call and short Aug 140 call. The underlying is going my way and I want to lock in profit but the short is dragging on the return. McMillan said if you want to to trade, you should buy the call outright but I find the long call alone too pricey and risky. Is a bull call spread meant to be held until expiration and should not be traded actively?
I do not know how much you paid for the spread. Read this to learn more: http://www.redoption.com/options_basics_verticals.php I like to use spd for high priced stock directional trades too; but have to watch out for how much I pay for the spd. When the stock moves your way, unfortunately the one you sold moves faster. The near max value achieves near expiration moment in ideal case.
You have to be more patient with that type of position. The spread won't move much because of the "crazy greeks" associated with the short-140-call while it's slightly-out-of-the-money.
Hi Just use a pricing model to see what move in the underlying is necessary to make the profit you want in the time frame you chose. Choosing a spread over the outright option somewhat neutralises your vega risk, albeit at a cost. Best daddy's boy
amen to Daddy's boy...IF your very bullish then just a call but IF you have a target in mind then a spread is fine.
A OTM/ATM Aug Credit Put Spread could also be considered for a moderately bullish position. But would be costly if OIH dropped.
To your original question if you have made a good gain then close at any time. Right now you are ITM so closing is a good option even if you have only held a day or two. You could chose to take a portion of your profit and buy an OTM call. To achieve max profit you would have to wait until option expiration but as forex-forex points out you then expose yourself to max loss. When you open a spread you must be willing to take a smaller profit than you would have with just a straight call or put.
You will find that OIH being a relatively high vol stock will almost always have time value so early exercise is not a hugh risk.. Once extrinsic value of the short strike is down to .10-.20 I look to close the spread. edit. forgot its a debt spread ..but your 140 strike is all extrinsic right now. You might look to sell the 150/160 creating a condor to lock it some profit or sell the 140/150 to convert to a B-fly (you will actually be selling 2 units of the 140 and buying 1 unit of the 150) you may then have a B-fly for free and no risk trade. double edit...no you won't be selling 2 units but you'll be short 2 after selling the 140/150...sorry I'm inept at expressing myself. Just looked at the 140/150 and mid is 3.25 so if that is more than the cost of your debt spread......B-fly for a credit