Hi Mandeep, here are my 2 cents...
With 5 contracts bought @ 1.68, your total risk/investment for 5 BAC Jan 11 20 Strike Calls/LEAPS is $840.
Given that this option is currently trading at 3.55 mid, the easiest option is to sell it and pocket the 111% profit. Having said that, this however is not the only choice available...
There are several other choices which may provide even higher returns but will come with some level of risk associated with them.... Let me explain this further...
Since you are holding an ice cube (options are no better or worse than ice cubes) that won't melt away until Jan 2011, what you may want to look for is some ways to convert this into a risk-free trade. This can be done in several ways some of which include the following:
(1) Sell 3 contracts @ 3.55 which will put $1065 in your pocket - so you will have a realized profit of $225 (this itself is equivalent to 27% profit on your original investment) and you will be holding the remaining 2 leaps contracts absolutely free of charge. Keep them till you like and sell them later when you believe that bulls have run out of power (it hasn't happened since Mar 09 though).
(2) Sell all 5 contracts to pocket $1775 - keep your original investment in your account (840) and use the remaining house money ($935) to buy 3 Jan 11 22.5 Strike Calls - If you are in luck, you will make more money on these new ice cubes - if not, you have nothing to lose anyway.
(3) Sell short term calls against these profitable LEAPS to recover the cost on a regular basis. The risk you have in this case is that if the short-term calls expire in-the-money, you will have to cover the shorts either by buying the stock or selling your profitable LEAPS. If you are in luck, you will be able to recover the entire cost in 3-5 months after which you can hold the remaining risk-free LEAPS until you want to.
(4) Convert this into bull call spreads by selling 5 Jan 11 25 strike calls @ 2.10. Again, you will have risk-free options and you can carry the spreads as long as you like. This, however, will limit your upside profit.
As you can see, any of the choices above (and there are many more) will convert your trade into a risk-free position after which you can play with the house money as long as you like.
With regards to delta, there are several websites which will explain the meaning. Just google words like options / greeks / delta and you will get to them. For the time being, just remember that delta of a LEAPS option changes at a much slower speed that a short term option (the longer term option has a much smaller gamma).
Hope this helps.
I own 5 contracts of VBAAD.X that I bought at $1.68. I have no clue when to sell them and holding them for few more months is going to affect the return. Can someone please explain how Delta and all that stuff works with Leaps.
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