Thanks a lot Mark. Let me try to follow your thoughts. You sold the calendar spreads because you want to short volatility. And what made you enter into that trade and what made you exit the trade today? Could you please shed some lights on me about your trade? Thanks a lot!
First, look at the financial stocks yesterday that had options worth 5 cents at 1PM but then went up huge later in the day. To me, it's worth it to cover a short out-of-the-money option for 5 cents instead of waiting for it to expire worthless. Here's a horror story about someone who thought his long options had expired worthless, but they hadn't, and he wound up with $450K worth of stock in his account on Monday morning. Moral: if you don't want your options exercised, tell the broker. http://elitetrader.com/vb/showthread.php?s=&threadid=51251
I just wanted to add this - in general, "Feb 20 option" implys a strike price of 20. There is no reason to mention the day of expiration (or actually the last trading day) unless maybe it is a custom option (in which case that should be mentioned). Mar options will end trading on Mar 20th - no reason to call them Mar 20 options. They are Mar options with whatever strike. If I hear Mar 20 option - I will assume 20 is the strike price. JJacksET4
I had no calendar spreads. Nor did I suggest that I did. I didn't mention it, but I have iron condor positions: short call spreads and short an equal number of put spreads. Some spreads expire in Mar, some in Apr, some in June. Yesterday when the OTM call spreads reached a low enough price, I bought them back. Why? Because there is so little extra money to be made by remaining short those far OTM spreads. Example, Apr is still 8 weeks away. I paid 35 cents for the 520/530 call spread (RUT). Do I think there's much risk in holding? No. But I covered for two solid reasons: 1) I already made enough on this spread and there is no reason to take <i>any</i> risk to earn a measly $0.35 during the next 8 weeks. I can earn more than that elsewhere. 2) I'm still short the puts spreads. I have two choices here. Hold them naked short (spreads, not single options) or hedge them by selling a different call spread. I tend to hold for awhile. The point is that a 35 credit spread represents no hedge at all against the puts - and if the market rallies - not that I expect it to happen, I'll be well placed to either buy back the put spreads (my preference) to close the rest of the iron condor, or sell a new call spread. And if the market falls further, what did I give up by closing out the calls now? Another 5 or 10 cents? I couldn't care less. Long term success comes from good risk management, not holding options until they expire worthless. If that's good for Apr options, imagine how good I feel about buying back June call speads for 35 cents. Mark.