How to repair a Bear Call Spread?

Discussion in 'Options' started by wuming79, Apr 3, 2009.

  1. wuming79


    Hi, I had this position below which was already stopped out.

    -1 Apr SPY 80
    +1 Apr SPY 85.

    Price now is 83. What else can I do besides the following?

    1. Exit the whole trade
    2. Buy back only the sold leg and let the bought leg run.
    3. Buy back the sold leg and sell -Apr SPY 90.
  2. 1) You originated this trade to have a limited loss position. DO NOT consider choice 2 and 3.

    If you want to be naked long or naked short (shudder) SPY calls, that is a separate trade and a separate position.

    2) There are alternatives. You can move the whole position (roll). One way to do that is to close the current spread and then sell another.

    The common choices for 'what to sell' are:

    a) Further OTM, same month spread. For me, there's too little time remaining now to do that. But you may like the idea.

    b) Next expiration month, further OTM spread. this is the most common choice.

    3) But there is nothing wrong with simply taking the loss and waiting for a better opportunity to try again. That's your decision as a trader.

    Consider strikes nearer to each other than 5 points to reduce risk.

  3. rluser


    Why not consider 2? As long as the idea is 'the original position is not acceptable' then why not initiate a long call position without transaction cost?
  4. Hi RL,

    I can only speak for myself, and my comfort zone, but that's a desperation move. OP lost money to the rally and going naked long is simply a bullish attempt to recapture that loss. And to do it, he must own an OTM, soon to expire call option.

    To me owning near-term OTM options is gambling and simply way against the odds of success. I'd much prefer to take the small loss and move on. But again, that's my comfort zone.

    It's fine to initiate a position without transaction costs, but are you going to allow $1/contract to get in the way of owning a position you truly want to own, rather than one forced upon you by saving that $1 or two? Surely there are bullish plays with a better chance of success.

  5. wuming79


    Hi, sorry, may I know what is PO?

    I have seen some people rolled their positions until their whole curve is above the zero line. Do you happen to know what strategy was that?
  6. There is a fourth option, but you need nerves of steel--and if I just used it in March, I would have done fine. Sit tight! This upward movement really hasn't had a correction. You have a stop loss built into your bear call, so the most you lose is $500.00 per contract. Otherwise, I would exit the entire spread, all legs at once, if possible. If not possible, and sometimes it isn't, just get out of the losing side first. Lastly, if you have multiple spreads, then maybe exit 1/2 of them, and let the others go until the Monday before expiration. So, lots of options (LOL). I wrote a thread here complaining about bear call spreads. I am sure that your initial premium you received from the short call has tripled or quadrupled.
  7. it OP. The original poster

  8. spindr0


    What you do depends on your outlook for the underlying now and how much add'l risk you want/can handle. For example, if you believed the run was over, you could book a profit by selling the long leg (80c) and buying the 90c, creating a bearish spread. That could be added as #4 on your list. Obviously, you increase the spread's risk but that's no problem if you get a reversal.
  9. I don't understand the "stopped out" part. Was the short position assigned or did you close it?

    I would have either close the entire position to cut the loss or keep both legs open and either go for the maximum loss - which you are close to any ways - or maybe get a profit if SPY drops over the next 2 weeks.


  10. You could try legging this into an iron buttefly by selling the 75/80 put spread as well

    #10     Apr 5, 2009
    Axon likes this.