Buy back credit spread?

Discussion in 'Options' started by EVAP, Mar 21, 2012.

  1. EVAP

    EVAP

    I entered into an April put vertical credit spread that is now deep in the money. the max profit on this is about $2000. If I sold now, I would lock up about $1600. Would ultimately like to enter into another credti spread, not so much in the money. Curious if you folk out there have a strategy for when to buy back these spreads vs. let them run until expiration. Or perhaps there is another strategy?

    Thanks
     
  2. If the B/A spreads are wide and it's only a few days until expiration, I'd let a deep ITM spread ride.

    If there's a decent amt of time remaining and there's a chance of doing better in a nother position, close it.

    The safest playt is to always close and book maximum profit positions and move on.
     
  3. stoic

    stoic

    If it's a credit spread the max profit would be the credit.....and one would want them to expire worthless and not have to close the position.

    If it's a credit spread and deep ITM one would have a max loss..!!
     
  4. FSU

    FSU

    What is the stock?
     
  5. EVAP

    EVAP

    Thanks. It's a spread that expires in April (3d week). Bid/Ask is farily tight (can close near midpoint). It's in the money (a few strikes), and somewhat deep, enough that I can close for a gain of $1.5K or wait till expiration and earn the full $2K (Assuming there is not a dramatic market move!). Commision to buy it back and close would be about $100. If I closed it, I would just enter into a new similar spread today (closer to the money).
     
  6. EVAP

    EVAP

    Sorry - the spread is now deep out of the money.


    I entered into this spread near the money (call it at the money). I bought the at the money put and sold the put that was one strike above - I received a credit. Now the market has moved several strikes higher - enough that I could buy this back and gain about $1500. If I sat on the position, and the market stayed above both strikes (high probability that it will), then at expiration (April), I would gain the full $2000. The spread was intially sized knowing how much risk my bankroll could take on. I could enter into another spread, knowing that most of the risk has left the position. This leaves me with 3 choices:

    1) Buy it back now (commish about $100), enter into a new position at today's prices

    2) do nothing and let expire, do not enter into a new position now.

    3) do nothing, but still enter into new position (knowing this one has much less risk left to it).
     
  7. My rule with a credit spread is to close it out with 80% of max profit if there is enough time left that the trade could go against me.

    Your trade appears to be working and has little time to go against you. Which is not to say it can't or won't.
     
  8. Take the profit

    Then leg into another spread for tomorrow's weekly expiration if you think you can squeeze something extra..
     
  9. JSO

    JSO

    4th option is to close the long leg to get back some money since the short leg is far OTM and the chances of it getting ATM/ITM is quite remote.