I bought an ibm aug/dec 125 put spread for 5.20 this Wednesday. My initial profit target was 15% or 0.80. The spread closed Friday at 5.90 and I'm tempted to get some more juice from this thing rather than close it at 6.00. Can anyone offer any sensible guidelines for rolling?? I appreciate any input.......Tony
it depends on what you think the stock will do. if you want more juice and think it will hold above $125 hold the short put longer. It will lose value a lot faster than the december. Time decay is fastest in the front month. There's no reason to close it unless you think the stock is going to blow through the strike price or rally, but if you thought that, you probably would not have done the trade in the first place.
One possibility: You might consider waiting a couple more trading days and see where IBM ends up before adjusting. I'm in a 125 put/130 put double calendar AUG/SEP and I'm just sitting on my hands at the moment. Another: Buy back 1/2 of your 125 put spread to lock in some profits now and then wait and see if you can get a little more from what is left. If it starts to look like you won't, get out of the rest before you lose any unrealized profits on the remainder.
I bought because I though iv was low. I had to pay up a bit because of the positive vol skew. I still think iv is low, but I do like the idea of taking half off. I am going to place try to take off half at 6.20 and swing with the rest.........Thanks.
Greed has officially taken over. I am attempting to roll the sept side to aug for 2.00 credit. The positive vega is ok in relation to the rest of my book.