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Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe
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To: Bridge Player who wrote (701)11/27/2002 5:18:48 PM
From: Dan Duchardt  Read Replies (1) of 1064
 
Spreads sure seem to limit your profits when the short side pops into the money. (Hasn't yet).

You've got that right. I've been playing the same game with QQQ. When I finally gave up on the bounce and started shorting near term calls at lower strikes than my LEAPS the thing finally exploded. Last month I rolled up and out taking some loss on the near term shorts. Unfortunately, my rolled up strikes are well in the money again. I'd like to see QQQ back around 25 or 26 at expiration. My highest strike long LEAPS are at 28. If I don't see a retreat next week I will probably roll up to MAR28 or JUN28 and pocket a little premium. It wont be much, but hopefully there will be some room for erosion when the next dip comes. I'm not fully covered, so at present I'm still a bit delta positive. One more spike will turn that around.

I have a very small CPN position long 2004JAN2.5 and just today I sold JAN5. If it gets above 5 I will start looking to roll it out a few months. You might want to do the same.

Ideally, one wants to keep the near term strikes above the long term strikes and write multiple rounds of short terms. I've not done it as well as I would like, but it's also a good idea to look for retreats to roll out or down the long LEAPS at low additional cost on retreats. I did that with CPN trading in two 5s for a 2.5 as I recall while it was really beat down. Time will tell if that was a good move overall, as it now appears I should have kept the same number of contracts, but this way I am not reluctant to write 5s going forward. If CPN really takes off I will consider taking some off the table by rolling the 2.5 higher.
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