bull call spread should be in profit but isn't. please explain

Discussion in 'Options' started by frankr, Jan 24, 2006.

  1. frankr


    hi. i entered a $440-450 bull call spread when the stock was in the 430s and now it is at 443 but im in the negative. i should be in the profit right? the 440 calls i longed are up 2.4/share but the 450 calls i shorted are up 2.5/share so im down $10/contract. i don't get it. can someone explain this to me? thank you.
  2. Perhaps, just speculating here, there is some skewing in the 450 calls.
  3. How far out did you go?
  4. Gee, I wonder which stock this could be... :D
  5. frankr


    yes the stock in question is obvious. the expiration is june 2006. can you explain the skew you mentioned? thanks
  6. The customers are ga-ga for Google? Traders are aggressively reaching for out-of-the-money calls. That sucks for you right now. That's what happens during raging bull markets. If GOOG keeps rallying, your spread should "come in" quickly. Offset the trade if it spikes sharply higher after bullish news. Good luck with it.
  7. That's a terrible ratio: u should have bought itm and sold far out: otm calls prices in consecutive strikes are pretty much the same and the diff sometimes is not more than a couple of c. The best u could have got is $1.
    Of course costs would have been atrocious with itm/otm but at least u'd have been exposed to decent gains, otherwise what's the point in playing goog?
  8. emjroll


    Options are priced on a volatility curve. Think of a parabolic smile with different strikes on the X-Axis and different volatilities on the Y-Axis.

    With a raging stock like GOOG, or quite often in commodities, skew is to the call. This means as the underlying goes up, the higher strikes trade on a higher vol. In option pricing, volatility is a major component of the options price. Therefore it could make sense that your higher strike is trading on a higher vol and subsequently is raising in price faster.

    But then again, I don't price or trade GOOG options. Any pros out there agree with me?
  9. Can you share the greeks (delta, vega, theta, IV, gamma) at time of purchase and as of today? It should be easy to figure out.
  10. I spread GOOG all the time. The best he can get is 10 - debit spread, which was not disclosed (but I suspect its around 5.50)
    #10     Jan 25, 2006