Re: [TheOptionClub.com] How Do I Get Out?

 

Hi, Ken, and thanks for the great advice. I purchased this calendar out of the money as a play on the market tanking. I only spent $200 for it with a huge reward if the market went south. I'm a big fan of Dan Sheridan and am familiar with his adjustment techniques, but this was what he calls a "time bomb" trade. Purely speculative in nature. That's why I didn't do any adjusting because it was DITM from the start. As it turns out, I put an order in to close the calendar at even and it hit the next day, giving me the max loss plus commissions. I was just concerned with the possibility of my losing more than the $200 I started with.

Thanks again,
RFH

--- In OptionClub@yahoogroups.com, "Kenneth Ginsberg" <ken_ginsberg@...> wrote:
>
> RFH:
>
>
>
> One of the things you need to understand about calendars (actually almost
> any options position) is that the max loss typically applies only when held
> to expiration and doesn't take into account things like bid-ask spreads and
> commissions (any kind of slippage). DITM options tend to have large bid/ask
> spreads as their deltas are nearing 1. Both of your calls are DITM right
> now, and it would seem like the only way to "get out" with only your .20c
> loss would be to go to expiration with it. The risk there is early exercise
> (and you are assigned) on the Mar 56 call since I believe SPY will go
> ex-div this Friday. If it is not exercised early, then it will be exercised
> at expiration and you will probably have to tell your broker to exercise
> your long Apr 56 call as well to flatten out the position since most brokers
> will not auto exercise a call that still has a month until expiration. (If
> you are assigned on Thursday for the divvy, you would then exercise your
> long Apr call then). This all assumes you have enough margin or cash to
> sustain an exercise and assignment. If not, you probably have no choice but
> to bite the bullet and eat the additional loss.
>
>
>
> I am also just wondering why, along the way as IWM went further and further
> and further against you, you didn't adjust the calendar or just get out of
> it?
>
>
>
> Dan Sheridan has some great videos (most free I believe) on the CBOE website
> that explains calendars and how to adjust them, and if you look through this
> groups messages there may still be a video replay available of a seminar he
> did for us on calendars a few weeks ago (thanks again to Chris for making
> that happen).
>
>
>
> Hope this helps.
>
>
>
> Ken
>
>
>
>
>
> From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
> Behalf Of RobertH
> Sent: Tuesday, March 16, 2010 12:33 AM
> To: OptionClub@yahoogroups.com
> Subject: [TheOptionClub.com] How Do I Get Out?
>
>
>
>
>
> In late February, I bought a Mar/Apr IWM call calendar at the 56 strike for
> 0.20. I paid $200 for this directional bet with IWM around 62 at the time.
> Well, the market certainly didn't go down, so I want to exit this trade. I
> was under the impression that if you bought a calendar spread, the most you
> can lose is the amount you paid. But to unwind this trade, I have to buy
> back the March call at $11.61 and sell the April call at $11.45 for an
> additional loss of 0.16. How can I get out with only a $200 loss?
>
> Thanks,
> RFH
>

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