I have an open position in SPY formed as a bullish vertical spread with the call bought at 105 and sold at 106 at a cost of $.45. It is currently deep in the money with a maximum upside of $.55. If I think the market will continue to run higher (let's say to 1120) when should you decide to buy back the sold call?
My rule of thumb .. never break spread for this reason. Liquidate your winner as it widens out (if you're so bullish). There is no reason in hell to be long a solitary JUN option (assuming its june) Your position could be out of the money by the end of Tuesday's trading session ... you never know. If your bullish thesis works out ... volatility is going to drop like a stone anyway and your long call is going to shrivel in value like a wee-wee off the coast of Maine. If you're bullish sell the the 104 102 put spread or something like that and check out the quarterly option chain if want a bit more juice (32 days).
The ideal time to close a position is when it has the greatest gain - only newsletters know that (g). The problem is that you only know that in hindsight. So the only thing you can do is draw a line in the sand and run a real or mental trailing stop to protect a gain and that's no guarantee since stocks/markets can gap. I'm not clever enough to know where the market will be X days/weeks from here. But I do know that markets can gyrate and I'm always willing to risk a smaller profit, chasing a reversal for a larger gain, particularly after an extended trend or in volatile periods. I didn't look at quotes but if you bot the spread near the lows several days ago and your ITM gain is due to SPY rise (rather than you just bot it and got some IV contraction), I'd take a look at rolling the 105c up to 107 or 108 (booking a large gain and converting to a bearish vertical) and selling an OTM bullish put vertical to try to fund potential upside loss. Of course this has nothing to do with you since you think that the market is going to run higher
If you think the market will run higher, run some numbers. Factor in not only the expected option price due to the underlying but also the historical volatility to reckon how much lower IV will get, and how much lower the value of the options will become due to time decay. Personally, once my spread hits my target price and the underlying stops moving, I close it all out and find other fish to fry. The only time I leg out is if I can't get a decent fill on my combo order (which sometimes happens with options with wide margins or low volume or, as I think some days, ornery MM's).
If you are holding a profitable position waiting for time decay, to improve your return, consider locking your vertical profits by creating a Box spread, take the profit and forget it. Just a thought. Carl