Hello, Just trying to get an opinion or two on a V(isa) spread I have. Maybe a month or so ago I initiated a Jun '20 185/205 spread. V is currently trading near $208, with 5 months to go, I would like to keep the spread alive, but am unsure if it would behoove me to keep the spread as is, roll up the short call, or roll up the whole thing? Initially I just wanted to roll up the short call, but now I am not sure.
If you have to ask something like this; the right answer is to close the trade once you don't know what is going on anymore. Also the time horizon is so long and you are incredibly vague with any details or trade thesis. Why did you even put this on? You didn't even tell us if you're short the 185 or the 205..
GTFO. Why? Well, how much more are you expecting to make on this trade? What's the probability of substantial movement down in V? "Nah!" Take your happy early earnings, and GTFO. Why not a stop loss? Well, cuz it's a spread, and it's going to move with (perhaps) more speed than a stop loss can maintain. Look for the next trade, and GTFO.
Thanks for the quick replies! For more details, I actually own shares of V and felt that the sp would increase nicely between Dec '19 (When I initiated) and June '20, so I opened the aforementioned spread, long the 185 and short the 205, I just didn't think it would increase as quickly as it has, so it caught me off guard, that's my bad, should've had a plan in place already. The long call premium has doubled from what I paid for it, but the short call has more than tripled, so the short call is really eating into the profits, hence one of the main reasons I wanted to take action. I still think V has room to run, so I think it's worth it to keep it going, but to just roll up the whole thing or just address the short call, hmm. Admittedly, at the moment, I'm not sure what action would be in my best interest. I like the idea of holding onto the long call because it's gone up nice, but I feel I really need to take some sort of action. Although, I will entertain Magic's and tommcginnis's suggestion and close the whole thing out.
imo unless you have an opinion on vol, use the underlying instead. You made a delta bet and won; go ahead and collect your profits. Your long strike sunk into the skew so you're going to be paying more for your gamma now; which is only going to end up benefiting you if there's a decent drop in price; but that goes against your thesis. Likewise if you think the thing is going to keep moving drop the short strike entirely. It's not doing any risk control for you or anything. If you think spot is going up don't short anything up and out.. I don't know what the surface looked like when you put the trade on but you lost on deltas, and likely a few vol pts all the while you were picking up vegas as the 205 became atm.
If you think V still has room to run, one option if the profit is large enough already is to close out the short, roll the long to cover you cost and let it run. If it were me in your situation and believed V would continue to run, I would close the short and wait. In my experience, for a directional bet, I was almost always better off just bet single leg rather than a spread. By betting long call or put, I am already hedged and a spread limits my gain and defeats the purpose of long option: You want convexity working for you. It is a different story if I decide to short call/put, then a spread makes sense.
Magic and ironchef, thank you very much for taking the time to write. Options are still new to me, less than a year experience so far. I started with straight calls, then moved to spreads because the author of the options book I subsequently bought (Options as a strategic investment) more or less praised spreads over straight calls, so I began down that road. Currently almost all of my options related positions are bull spreads, only two are plain old calls. This arrangement has worked well so far for me, but as I go forward, I need to learn when to do a call vs a spread. I also need to perfect my strike prices, I always buy itm long calls, but in the case of my V spread, the higher strike (Short call) has appreciated much more than the lower strike. There's a guy I follow on stocktwits that seems to always buy otm calls, so there must be more to it than meets the eye, for me anyway. As for the spread this post was created for, I'm still weighing my options no pun intended, but thinking about holding it as is for a little longer, V has been hot the last few days, I think it will go back down some and then I would buy back the short call and see what happens. Thanks again!
First, welcome to ET. There are lots of wonderful pros here willing to help us newbies. Second, there are no right or wrong way to trade options, any method can make money/lose money. You do what works for you just like I do what works for me. The devil of course is in the details and the details are very personal. Friend and I trade the same underlying and we are both profitable even though I was long the majority of the time whereas he was always short. Regards,