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Strategies & Market Trends : Option Strategies
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To: Elroy who wrote (2561)4/29/2024 6:39:24 PM
From: THornsby1 Recommendation

Recommended By
dealmakr

  Read Replies (1) of 2591
 
If NGL is $6.02, your short dated $2.50 call has $3.52 of intrinsic value. You could place a STC order for a better price but there is no incentive for anyone to give you full value. While waiting for a better fill on the STC order, XYZ could change in price and intrinsic value could be lost. Take the win.

For stocks whose options are liquid (not NGL), there are several things you can look at if the B-A spread is very wide:

-Collar your long ITM call

-Execute a spread where you option is one leg and the other OTM and inexpensive. As soon as your filled, close the new leg. This strategy is particularly useful at the end of year when you have zero bid options that you want to close for tax purposes. Market makers are more likely to fill such orders because they're capturing more B-A spread (two legs).

These option adjustments are viable if the options are liquid with narrow spreads. With all of these extra transactions, in the long run, most of the time it makes more sense to (1) sell to close your long call if you can get within a few cents of intrinsic value or (2) If you have the buying power, do a Discount Arbitrage, avoiding the B-A haircut. For your long ITM call, short the stock to lock in the intrinsic value and then exercise immediately. Short the stock first to avoid leg out risk. If you have a large number of calls, stagger the transactions.

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