Option Spreads, Credit my Debit Message Board

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Strategies & Market Trends : Option Spreads, Credit my Debit

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To: jjs_ynot who wrote (1476)	6/4/2000 1:00:00 PM
From: Mark Z	Read Replies (1) of 2317

YES! YES! YES! I'm certainly interested. Great idea, Dave! And here's a situation I'd like to get help on. You have a credit spread on. The stock gaps wildly against you overnight. What to do, what to do... For example, let's assume you are long XYZ 45 calls (2002 leaps) and short XYZ 40 calls (front month). Let's assume you opened the spread when XYZ was at 48 which is clear resistance. XYZ nicely dips to 38 and you didn't cover because support for XYZ is in the 32-33 range. Then there's some friendly economic data and XYZ gaps up at the open to 50, breaking previous resistance. You can: - roll 40s out in time and up in price - buy back a % of the 40s (or buy the underlying itself or some 45s) and take a hit but get back to something approaching delta neutral until XYZ clearly has found new resistance - roll 40s out in time (but not up in price) and be patient for the next downturn - panic, curse the economy, close the position and vow never to trade that stock again - wallow in self-pity & wonder why you didn't close out 1/2 the position in the 48-50 range meanwhile doing nothing like the proverbial deer caught in headlights - double down because you know it just has to retrace & fill that gap Any other ideas?! I've been doing 1 through 4 at various points in time over the past few years. I have some BUD leaps that I write calls against for short term income and got hit when it ran from 70 to 80 two months back. Fortunately, I chose option (3) and the past 2 days my patience has been rewarded. I also have SCH leaps that I write calls against and am mulling over what to do given Thursday's/Friday's performance. Hindsight is 20/20 & on Thursday I should have gone to delta neutral pending the release of the economic #'s but...I didn't. The 'good' news is I also had a credit spread on for SCH puts so some of my loss on the calls was negated by my gain there (note: by having both call & put credit spreads on, I was basically selling premium; overall the objective was to play the trading range the stock had been in but now its broken out and any further run in SCH will lead me to lose more on the call side than I gain on the put side).

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