Hi - Our Firm has a 30 day holding period. Suppose I put on a 135/145 bull call spread that expires in 45 days. Stock rallies in a week. I cannot close out the spread position earlier than 30 days. What else can I possibly do to lock in gains? Buy puts? Buy or sell a similar call or put spread that is further out? Thanks for lending your experience and expertise.
You want to match expirations to avoid vega risk and a potential situation where one month to goes up while the other month goes down in valuation. I would sell a call of equivalent delta/gamma, and accept the risk of a potential blow out...the stock rising much faster/farther than expected. ( Except for a biotech stock which could really explode up). Buying a put is ok, also. Except that now, you very long volatility which could contract and take much of your gains. Why not just hedge it with the underlying? Much simpler and you don't worry about greeks.
But I can't cause of the 30 day holding period limitation, otherwise I'd just close the spread position.
Oops. I am sorry, you buy a put of equivalent delta/gamma. Any positive PnL drift from your spread from being in the money will offset the theta cost of holding the put. But again, the caveat of volatility declining further. Matching the expiration would be a 45 day option. You close it all in 30 days( with 15 days to go), the position and the hedge. What's the problem?
Cause I'm not sure I can sell a naked call. Furthermore, I'm not quite sure how to hedge with the underlying, unless you mean selling it short?
I made a correction to buy a put instead. I am a little more discombobulated than usual tonight. I apologize for any further confusion that I may cause. Yes. Hopefully, it is a shortable stock. Also, you will pay the dividend if it goes ex-dividend during your holding period. Can you provide the name of the stock so that I can model it for you visually?
Yes. If the bull spread is a small holding, you may have to do a put spread to downsize it's exposure to mach your bull call spread. But, then you probably wouldn't be sweating to hedge if it was small.