Friday, September 25, 2009

[TheOptionClub.com] Re: Quality Problem: Long D-ITM Calls

 

Lance

I know others have chipped in with some great adjustments ... another one to add to the list would be to 'slingshot' the position Cottle style .... by selling 4 call verticals against the core position.

For example, you could trade -4 90c / +4 100c for credit $5 each, $20 total credit.

Leaves you with +2 75c / -4 90c / +4 100c for a total debit $8 and plenty of upside potential.

Cheers
James

--- In OptionClub@yahoogroups.com, "L" <silverdollarnyc@...> wrote:
>
> Hi - I'd love to have some help trying to make a proper adjustment to my wonderful long position. I've looked the Michael's article/PDF "Trade Adjustment Basics" and while I understand in in principle, I'm having trouble applying it to this position.
>
> I am Long 2 Calls on the GLD at 75 Strike, Jan 2010 expire. (GVDAW) I paid around $14 for them back in Dec 2008. GLD is up around $99 now.
>
> My outlook on GLD is bullish, but I know I could also easily be wrong and could watch my gains evaporate.
>
> According to Michael's adjustment decision tree, I would sell OTM calls. Problem is that the the premiums at the 100 and higher strikes are so small (less than $5.00) that they do little to protect my downside. If I go further OTM, the premium becomes meaningless.
>
> I've thought about buying a PUT at my BEP, that would be cheap at only around $1.50 or so.
>
> Quality problem, I know, but still, I'd love to get some guidance on possible ways to proceed.
>
> With thanks,
> Lance
>

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