Bull Call Spread... Too fast?

Discussion in 'Options' started by Bradpreo, Jul 8, 2011.

  1. Bradpreo

    Bradpreo

    Bull call spread
    Buy AAPL 345 Sept call
    Sell AAPL 360 Sept call

    Current price is 357... Moved way too fast.
    What should I do here...?
    My thinking is buy my 360 "short"now and take the loss and lt the long run for an increased profit?
    What would y'all do? :confused:
     
  2. tomk96

    tomk96

    i'm confused. what did you pay for the spread? what is the current market on the spread?

    if you are long the spread, why would you buy in the short with aapl trading 360?

    you seem like you want to cover a loser, but you mention the 360 line. you want the stock to be trading here. i'm so confused.
     
  3. rew

    rew

    You've learned the downside of vertical debit spreads. If the underlying moves too fast in the right direction the short side rises in value very fast and eats into your profits. The choices: Close out the position now at a profit, but not as big a profit as you'd like, or wait until you're near expiration and the time value on the short side has shrunk so that you get nearly the full value of the spread. Of course the risk there is that the underlying drops again before expiration.

    What I wouldn't do is buy back the short side at a high cost and hold onto the long side. If you do that the Market Gods are just way too tempted to send the underlying back down, causing losses on both legs of the trade. But that's just me and my paranoia.
     
  4. I would (almost) never book a loss and carry a paper gain. The market has a perverse way of hurting that mentality. I'd sooner book gains and hold paper losses so reverses help not hurt.

    In this case, you have a 15 pt spread and if you bot it when AAPL was close to 345, you have a nice gain on the Sep 345c which I'd book now. The most basic way would be to roll it up a strike or two. I'd guess that the booked gain would cover the maxium loss on the new spread should AAPL tank. The cost of this would be an opportunity loss should AAPL continue up and be above 360 at Sep exp (you'd make less on the new spread).

    There are more exotic approaches. For example, diagonalizing or adding another position to protect some of the gain (sell OTM call spread). The choice would be based on prices obtained at opening, current prices, current outlook and risk/reward tolerance. The general idea would be to capitalize on the appreciated 345c .
     
  5. I'm also not following ... The (long?) spread isn't losing money as far as I see.