TXN Spread

Discussion in 'Options' started by tjuggler, Oct 20, 2003.

  1. tjuggler


    This afternoon (Monday, 10/20/03), I bought 20 TXN NOV 25 CALLS for 1.50 (YEAH!). I also sold 10 NOV 27.5 CALLS for .50 (BOO!).

    If anyone has a cogent and sensible way to exit these, please respond tonight. Thank you.

    BTW, TXN was at 27.50 after hours, up from 25.46 at the close.
  2. This is a simple bull spread, entered for a debit of $1.

    Sell the position as a credit spread (i.e. for a fixed differential), say $1.75, for example.

    Otherwise, I don't understand the question.

    But, congrats on your foresight. I am short TXN at 27.42.
  3. Maverick74


    I would buy back the Nov 27.5 calls and buy the Nov 25 puts.
  4. Puma14


    Buy back the 27.5's after vol comes in tomorrow around 11:00 A.M. (e.s.t.) and then sell stock against the 25's ( sell 1000 shares if you own 10 calls, 2500 if you have 25 calls, etc.). That way you have locked in your gain and have a free shot on the downside, because by selling stock against the calls you have turned them into synthetic puts. Good Luck...

  5. tjuggler


    Thank you for your responses. It will definitely help.
  6. Maverick74


    Yeah, that's what I was thinking but I would buy the puts also to take advantage of the drop in Vol. That way if the mkt comes back in he might be able to catch a few upticks on the vol and get out of the spread at a higher profit. Buy back the 27.5's and buy the Nov 25 puts.
  7. Trajan


    Puma does suggest the safe trade which could end up still paying off big. However, I agree with Mav that this could provide a nice opportunity to get into some premium dirt cheap. Looking at the chart, it seems like this gap may help break it out of its pattern. The two otms 25 and 30s may be really inexpensive in the moring assuming the stock opens 27.50. The 30c may open .20-.25(assuming a 30 IV), bid .20 for 100(total cost $2,000) and then sell 1000 shares of stock(or may be the 25cs or perhaps just do 27c/30c 1 by 4) You want to lean the position long anyway you put it on. You have 5 weeks until expiration, so give it some time to run either way a little bit before hedging again. Hell, I might try this out in the morning.
  8. Trajan


    Of course you could do the opposite as well with the puts.
  9. Maverick74


    Yeah you could do that but since he said he wanted to exit the trade I figured he wasn't interested in leaning long. If he wants to stay long then why do anything right. He's long right now. But if he wants to get delta neutral and still provide himself with a little more upside I would buy the cheap premium. This market is so overextended. A couple of hard down days and he could see that premium pop up a little in which he could exit his position with a little more profit without having to lean long or lean short.

    The premium on those puts could come up nicely if the stock were to come in 3 or 4 pts especially as the stock goes through the strike.
  10. Trajan


    Goods points, the general idea is that the long premium play offers the best risk/reward at this point if the IV comes in as expected. The wings offer little risk and a lot of reward if the stock were to approach either one of them in the next two weeks. Being a backspread, my example profits in either direction. And yes, generally you want to lean deltas in the direction of the long premium.

    He paid $1.00 for the spread, which in the morning is going to be worth 1.65-1.75 with a 30 IV(or perhaps 1.70-1.80). Rather than sell out of the spread for a gain of .75, he should sell stock 1 to 1 thereby owning the 25p and buy the 30c for .20, 3 30s for every 1 27c. In a week, the stocks up or down 2 points he makes more money, If the stocks flat, he'll probably break even at worst.
    #10     Oct 21, 2003