Pre-Expiration Choices

Discussion in 'Options' started by spindr0, Feb 22, 2012.

  1. spindr0


    When an UL that I'm willing to own is near support (neutral outlook), I often sell a bearish call spread on top of a NP if I can get at least a buck above the difference in call strikes. For example, sell an ATM Mar 70 straddle and buy Mar 72.5c for a net credit of $3.50 ($2.25+2.25-1.00).

    If put the stock, I acquire at 66-1/2
    If ideal expiry, I net 3-1/2 pts
    If assigned on call, net 1 pt

    It's not unusual for the position to reach upside parity weeks before expiry if at the upper strike (position value = $2.50). The obvious choice would be to close and take the upside buck early.

    Just closing some of the NPs takes away downside risk but cuts into the buck. The only thing that almost makes sense is to sell one Mar 72.5p for every two Mar 70p's closed (for even money). That will maintain my upside buck, reduce my gain down to $67.50 but greatly reduces my risk below that. Not great so looking for other clever suggestions. TIA.
  2. Nine hours and no reply, perhaps I could be of some assistance. :)

    I recommend an Iron Condor for UL's that you have a neutral outlook on. And perhaps sell an extra put 1 strike OTM since you are willing to own the stock.