Investing Talk

uncle_vito · Guest

Sometimes I have a vertical debit call spread that gets the long leg in the
money but the short leg is still OTM. I may want to capture the gain on the
long leg, but let the short leg 'ride' if expiration is only a few days
away. Easy money to let the short leg expire worthless and let me keep the
entire premium.

My broker will not let me have short calls without long calls or underlying
stock present in my account.

Is it a good strategy if I want to sell my profitable long calls before
expiration to buy some way out of the money calls to make the broker happy,
yet allow me to keep my short leg so it can expire worthless in a few days?

Advice? Arthur?

Thanks

Vito

arthur · Guest

I can not in good conscience advise someone to do what I would not do.
Being short Calls is living on the edge. You could buy the stock
which becomes a CC and protects the short Calls but at the risk of a
loss due to a stock reversal. Good if the bull story is better than
the bear story. :)

Personally, I would just let the position ride to expiration. Deltas
will fall and you avoid paying the bid ask spreads ... which are the
killer, and not commissions like some imagine.

You should notice that exiting a spread early never yields maximum
profit. Even when near expiration.

a

On Sat, 10 Mar 2007 09:35:57 -0800, "uncle_vito"
<uncle_vito2002@yahoo.com> wrote:

uncle_vito · Guest

I guess buying way out of the money calls IS risky since they would not
protect against a reversal when holding short puts. Sometimes I am
wondering what risk I am taking on with only a few days to go before
expiration. I can always calculate that risk with buying way OTM calls and
seeing if I am willing to tolerate it.

I will try letting the position ride to expiration as you suggest. Dang, on
expensive options for stocks/indexes like $SPX and CME it takes all the way
to expiration for OTM short calls to go worthless. 1 day before expiration
and these OTM options are still worth something (a few thousand on 5 short
call contracts).

BTW, Schwab won't let me undo my profitable spreads unless I do both legs.
I can't sell the long leg without covering the OTM short. I have to sell
the long or else take possession of the stock. To sell the long, I have to
cover the short and pay the rediculous spread. Last month I 'insisted' on
only paying a 5 cent spread on worthless S&P calls. They had originally
wanted 10 cents.

Schwab will waive their commission on the covering of the worthless leg to
undo the spread. However, like you have said, it is the spread that is
expensive, not the commish.

Vito

"arthur" <trash.all.spam@xoxy.net> wrote in message
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