Help Me Manage my MSFT Calll Vertical

Discussion in 'Options' started by OptionsStudent, Jan 27, 2008.

  1. I opened the following position and would like to receive advice and comments on how to manage it:


    • What can I do to this position if MSFT won't see 35 again.
    • When should I do it?

    A friend said that I should just let this thing sit until a week before expiration and then liquidate.

    Can anyone recommend articles/books/sites on position management?

    New Trader
  2. Hi NT..You made a directional bet that MSFT would go down or be flat. Earnings came out and your bet went bad. It might make sense to try to adjust IF you still held a firm belief that MSFT will by expiration go back down. However you seem to be unsure and now your trying to find a way to take you bet back.

    You received about $100 credit for the spread with a risk of losing $150. So far you are down about $10 so if you do think MSFT will stay around 35 or higher to expiration then the very best thing you can do is get out for this small loss. If you still feel strongly that MSFT will go back down then your friend could be right and perhaps it would drop down to 33 or so and you'll come out slightly ahead. You can always roll out a short vertical spread using a butterfly trade to a strike farther out but in this case I would't suggest it. Most of the time "adjustments" just postpone the inevidable loss so its best to get out when the loss is small.

    When you put on a vertical spread just before earnings the Implied Vols are high so trying to adjust after the vols drop is usually a no win situation. If you thought that MSFT was really going through the roof now you could get bullish and go long, but realistically we know that MSFT probably won't be going that much higher in the near term. Before looking at adjusting your spreads you need to look realistically at what the most likely outcome of the stock will be.
  3. MTE