The differences in where the underlying could be (100-190) doesn't change 1) expected directional move in volatility 2) that legging out of the spread radically changes your exposure Again, Martingale. Do you commonly ( and successfully) double down when trading the underlying? If no, then you are potentially developing the habit of blowing your account. If yes, then you can become a very wealthy person scalping futures instead.
I love the Martingale reference, thanks for keeping me grounded. I agree legging out requires cash that I could otherwise use. I suppose it boils down to this: Suppose, for a moment, one decides, as a totally separate trade, to go long the 200 call. Then that is the same as closing out the short leg. However, I fully appreciate that I would not have gone long the 200 call originally and now that the underlying is down, what is the reasoning to go long the 200 call now? (Other than the 200 call being priced less and hoping for a recovery). So I'd have to be more bullish. I like the recommendation to assess the delta impact. Many thanks experts. Lots to think about.
Think of your position in terms of aggregate exposure. That's your original frame of reference. What kind of exposure do you want it to be, now? Execute ! (but with minimal cost and extraneous impact) I'm no expert. I was were you were a few months ago. My job is help the newbs and get the real experts talking. Because, what they tell you can't be read in books. It's born of deep knowledge and experience. Unfortunately, it's like playing poker with a bunch of grand-uncles. And the newbs are as dense as teenagers.
I am new here, but I will do this frequently when I have a bull call spread. On a dip, buy back the short call and then sell it again on a move up. I did this with AAPL in Jan-Feb. Note I try to do this intra-day based on day-trading charts I use as I like to keep the short call hedge in place as much as possible. But there are times when I see a good technical set-up on a daily chart and will hold overnight or for a couple of days. Here are the specifics of the trade I did: Oct 90-95 Bull Call Spread Trade 1-9: 200c bought at 3.65 (buy 90 call / sell 95 call) The below are trades where I buy back the short 95 call on dips and then sell it again on moves up. 1-15: $.45 gain from intra-day trade. 3.20 cost now 1-20: $1.30 gain from a Fri - Tue trade (market closed Mon). $1.90 cost now 1-28: $1.20 gain on intra-day trade. $0.70 cost now 1-29: $0.50 gain on overnight trade. $0.20 cost now. 1-30: $0.35 gain on 2-day trade ($0.70 gain, but 100c so using $0.35 as the gain for these 200c) $-0.15 cost now. 2-6: Close entire trade for $4.30. So I made $4.45 total on the 200c = $89,000.
Essentially, you are scalping/making a market in the short call and using the long call as margin relief. Do you? 1) track intraday vol 2) have autoquoting 3) an ability to get better fills than mid/model?
Yes, for intra-day trades I will use a 2-min chart with indicators I find have a high success rate with AAPL. And I would definitely call those scalping trades. I also track the intra-day moves over many time periods so I can look for trends (such as AAPL usually opens up Monday morning). Today is Thursday and here are how the last 2 hours have traded in AAPL since Jan 1 of this year: https://www.dropbox.com/s/r4k7gi7fd0p55cr/Screenshot 2015-03-12 13.12.22.png?dl=0 I will do multi-day trades based on other things: 1. AAPL chart. I use Tom Demark trend lines as they work well with AAPL. And I also use RSI and MACD crossovers as they are also very good indicators. Here is my daily AAPL chart. The white circle shows the recent TD demand line break which was a good downside trade. https://www.dropbox.com/s/rttetfdncqwhrns/Screenshot 2015-03-12 13.08.34.png?dl=0 2. AAPL Open Interest. I track how AAPL finishes the week based on where the high put / call OI is on any day of the week. For example, this morning the high put / call OI for this week was 125 / 130. Since the split in June, here are the stats for how AAPL has closed end of week based on this high OI: https://www.dropbox.com/s/5rq24cxit0rjbgk/Screenshot 2015-03-12 13.09.57.png?dl=0 3. I also look for predictable trades around earnings and Apple Events. For example, AAPL has some trading patterns on product event days that work well. Here are some past intra-day charts for AAPL events. I made a few good trades this week on the Apple Watch event. https://www.dropbox.com/s/rqisp6d5kdbicst/Apple Event Intraday.pdf?dl=0 How AAPL trades the days before / after these events is not quite as predictable. Here are those charts: https://www.dropbox.com/s/r966xqdqzwon7zn/Apple Event daily charts.pdf?dl=0 I typically get fills at the mid/mark. If I see a good opportunity on my intra-day chart, I may leg in to a spread. But I prefer to not do that as a move the wrong way after entering one side can happen.
Interesting work. Very advanced and methodical, but overkill for this thread. Keep the discussion to the basic level why you think selling and buying the short call is fundamentally sound. But, don't nuke your readers with kitchen sink! The real experts are lazy to read and want to be partially entertained. Also, let everyone digest your post and trickle down content to keep people engaged.