SMH Short Calls...

Discussion in 'Options' started by MaxLD, Apr 24, 2007.

  1. MaxLD


    Which is to say, SMH covered calls. Only recently did I sell SMH MAY 35 covered calls for a 75 cent premium. It seemed like a good idea at the time, when the .75 premium was still well out of money. What a difference a few days can make. SMH is now at over 37. The options remaining time value is only about 20 I've pretty much made my money.

    My question is, with SO much time remaining to May expiration, does it make sense to cover these calls and sell my SMH shares to close out this transaction? I think there are other opportunities I can take advantage of between now and May expiration.

    Thanks in advance for your replies...

    Best regards,
  2. bh_prop


    I personally follow the advice of Terry Allen (Terry's Tips) for rolling over short options. When the average daily decay of the option you are short becomes less than the average daily decay of the next month out, roll the short position. Keeps it simple.
  3. MaxLD


    That does keep it simple, but I don't mind telling you that I did a double take at seeing the name Terry Allen. Be careful...I suspect you already know that story by now.

    Thanks for your reply.
  4. What is your basis on the underlying? Perhaps take your profit on the 35 strike and sell the 40 strike.
  5. If you want, unwind your CC position, and go ahead and use the money for other opportunities.

    Although, if you feel there's very little risk, Hanging around till expiration day for 20 cents isn't that bad. Especially considering you're paying slippage and commissions on a stock and option trade to unwind it.

    I don't have to pay for assignments, so I'd just wait for the assignment.
  6. MaxLD



    The cost basis is down to around 29. I've never had SMH run away from me like this before, it has always been so range bound until now. I think I'm going to closeout this transaction. I got what I needed from it. Thanks for your reply. Good trades to you.
  7. MaxLD


    Thanks for your input...point well taken.
  8. Since you're going to unwind it, make sure you put it in as a buy/write unwind order, DO NOT DO THE TRANSACTIONS SEPERATELY!

    This way you gaurentee your net credit in closing it out.
  9. MaxLD


    Thanks for that advice. After years of working with options, I have never heard of a buy/write unwind order...just when I thought I had learned something along the way. I will look into it and will let it ride until I find out more. The securities are bouncing around so much today, I would certainly lose more than it's worth by trying to "leg out" of these positions.
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