On March 18, I sold an April 19 5X Bear Call Spread on NTES. Short the 250 calls and long the 255 calls. Underlying price then was about 243. Today it is about 278. I am still in this position. I will not go into the “why” as it is no longer important. The options have 9 days remaining. I know one strategy is to let it go and eat the $2,500. But, is there something better than that? Any ideas and help would be greatly appreciated.
You have already incurred the loss. You can pay 5 to buy it back today and hope someone sells it or allow the two assignments. I would do whatever costs less and move on.
My knee-jerk reaction (aside from eating the loss as per Robert Morse' advice) is to open two $5 verticals at $2.50, put the $5 back in your pocket, and let things play out again. The worst that will happen is that you'll be on the hook for the $5 again. ((For example, open $290/95 calls, and $255/50 puts, and the market falls back 10%, to ~$250 -- $5 ITM again.)) The time involved, though -- and this is an equity (albeit one with a fair degree of vol)... I don't know what's available to put $5 of premium back in your pocket, and not have the trading costs and the time/opportunity cost whither any profit. That's your call.
To be fair, it worked as intended. You set up a delta short spread where you losses were limited. You just have to work on: When to enter a trade and why. When to exit.
Unless you are lucky, have good ability at predicting future underlying direction, or just want to gain somewhere around the risk-free rate, IMHO just throwing on spreads and/or short option trades for no other reason than the conventional wisdom of "more options expire OTM, than ITM, etc, etc..." is not going to get you very far. A possible exception is to run lots of OPM and sell far OTM strikes, thereby hoping you get enough returns and fees to pad your retirement before the inevitable wipeout happens. I haven't explored it much but I believe there is opportunity in trading volatility surface discrepancies. Options pricing models (and trading desks) are far from perfect and there exists volatility skew between months and strikes. I think this is (one) of the specialties of traders here like Des, sle, big short, others. Certainly, this type of trading will take much study.
Welcome to the club. Been there done that. Trading single legs and betting on directional produced the best outcome for me. That said, I am studying butterfly, I like the limited loss part but so far, no cigar. My opinion of the underlying is still key to long term profitability. The million dollar question for me is if my opinion is correct, why limit my gains with butterflies?
You mean sell an Iron Condor on top of the ITM Short Call Spread? Wouldn't the put side create a box when combined with the existing short 250/255 Call Spread?
You can’t adjust for a profit. If you don’t know what to do, then just get out. The best traders are good at taking losses. If you’re wrong, admit it, book it, and move on. Also, options are a tool to implement your view on price and/or vol of underlying. There is no perpetual edge in credit spreads, ICs, flies, etc. Don’t fit the position to the opportunity. It’s like saying “I have this screw driver, what can I fix with it?”