Maybe a newbie question but oh well I bought a calender call on PFE 16 strike with front month August back month January. My question is: if the front month option becomes in the money (as it is getting close) as far as I can tell the only strategy is you buy back the front and sell the back month and only collect the diffrence between the two? Is this correct or is there a better way to play this. Is there a better way execute this, I thought the price would go up but not so quickly, any suggestions?
'Collecting the difference between the two' was your intention from the start. And if time has passed and the underlying stock is near the strike price, you should have a profit. Is closing the position and taking your profit a bad idea? If you do not want to exit, an alternative is to buy back the Aug call and Sell call - probably with a higher strike price. Then you also do another spread. You buy the 'higher strike' Jan call and sell you current Jan call. That combination should allow you to take in some cash and reduce your initial cost. But that's a lot of trouble. Why not just exit the trade? What did you expect to happen when you bought a calendar spread? Mark
my original thought was the front month would expire worthless and then keep the back month. Right now the options are moving in tandem bought with a set diffrence and that diffrence has not changed even though underlying has risen, I guess a nice way to watch time decay occur-lol.
Since your back month is Jan you have lots of time. I would NOT rush to close this trade. Just keep rolling month after month..I know PFE pretty well and my guess is one of these months...Sept or Oct probably it will close less than 16 and perhaps by then you will have completely covered the cost and then you can let the long ride. Worse case scenario is roll until Dec THEN close the trade...you will most likely be slightly ahead.
With no disrespect to RR, why would you take advice on an investment from someone you don't know? Asking a question is one thing, but making a trade because someone recommended it - is pretty silly. Hey Richard, don't you agree. Mark
My black and white two cents is that it is absurd to ask/take investment advice from strangers on the internet. The other two cents is that I would look at it as Richard sharing his opinion of the position and sharing what he would do in such circumstances. I would hope that any reader would evaluate those ideas, process the possibilities and then act accordingly. Now don't bid this one up on me. I have to cash in my CD's today, get a wheelbarrow from Home Depot and use this 4 cts worth of stellar advice to buy all I can carry!
I was being polite and thanking him for his response. Do not assume I was going to follow his advice blindly. I appreciate any feedback, thats why I posted and asked the question in the first place. I have learned that if I ask 10 people if I should jump off a bridge and 7 say yes I am still not jumping off the bridge
if 10 say yes, I would have to, don't want to dissapoint that many people. Thats why I rarely ask thast question unless I'm confident I can get at least 3 no's-and those no's are getting harder to find