Getting Out of Calendar Spread that is locked DITM

Discussion in 'Options' started by darp, Aug 22, 2007.

  1. darp


    This is a common problem, maybe someone knows a solution.

    Example (real) I have 10 of DB Put 170-150 Oct-Sept Calendar Spread with DB at 126. Thus both have no IV or preminum left, but the B/A spread prevents getting out without losing some money.

    So I can wait till Sept and get the full profit, but that is tying up $20,000 for 1 month for peanuts, as it is already squeezed out except the darn Bid/Ask spread. I can exercise the 170s as long, but not the 150s as short.

    This is such a waste of capital maybe somebody smart here knows how to get out at full value of very close?

  2. Could try a RFQ or call in and get a direct floor from the desk.

    Or you could offer to blow the MM in exchange for letting you out with your scalp intact. His shift ends at 4:30 pm. :D
  3. Don't knowwhich broker you use, but at IB using the spreadtrader I would enter a fair 'middle' price and wait, This usually gives mea fill after 15 minutes at the most.

    Is that what you mean?

  4. probably not the case here. OCT 170 put's OI is only 10 ( I'm guessing it's his when he opened).
  5. Opra


    If broker is IB, request a real time exercise on both legs, since there is no prem left. No exercise fees. Not sure if there are other fees since I have not experienced such situation.
  6. spindr0


    Other than being lucky enough to be assigned early, I'd put a closing order in for a credit of 19.80 and let it sit for a day. If that doesn't work, drop it by a dime. But I'd go no further than the cost of the Sep 150 call since you can buy that for 40 cts to lock in your gain.

    If you end up marrying the position for the month, I'd watch the it carefully because tho you have the maximum profit, it can still be given back. If closing for $19.70 to 19.80 doesn't work I'd consider trying to low ball offer 25 cts for some of those calls and fahgetahboutit until Sept.

    And yes, I'm not one of those smart ones who knows how to exit such positions :)
  7. darp


    It is with IB.

    The 19.80 spread is pretty good idea, just cost $200.

    On "middle" price I would have to watch it.

    I do not think I can exercise both sides, as one side is short.

    Thanks everyone for the tips.
  8. Another option is to create a lock. Iow trade the synthetic otm diagonal. The otm are usually more liquid than itm.
    I'm not quite sure which is your long leg but let's say you've got the oct/sep 150/170 put diagonal, i.e. you're long the oct 150 put and short the sep 170 put, both of which are deep itm. The synthetic equivalent would be the otm call diag - long the oct 150 call and short the sep 170 call. These positions are synthetically the same. The difference is that you may find it easier to trade the otm call diag. So, try trading the call diag to create a lock. Iow sell the oct 150 call and buy the sep 170 call. This will get you flat assuming no dividend or early assignment issues. At expiry the whole thing will then disappear.
  9. spindr0


    I think the long/short legs are the other way around but that's just details (g). Adding the synthetic diagonal to create a lock is a good idea but it costs almost as much as just taking the Holland Tunnel wide B/A's for closing the current put spread.
  10. How do you mean 'the other way around'?
    If he's short the 170 put and long the 150 put then he would need to buy the 170 put and sell the 150 to close. This is the same as buying the 170 call and selling the 150 call (all else being equal) - please correct me if I'm misunderstanding something here.
    I don't really know what the b/a spread for this stock is but from experience the options that are otm generally trade with smaller b/a. Of course, this stock's options may just be illiquid no matter where they are.
    #10     Aug 23, 2007