-----Original Message-----
Martin wrote:
<...>
I'm curious as to how you usually
close out your positions during expiration week.
I figure that you'd peel off risky parts as the opportunity presents;
ie., buy back ITM short legs, and OTM short legs with minimal time
value, right?
mc- short itm stuff I will usually just let get exercised. I buy in the otm
stuff that's either unhedged by a close strike or is very cheap. Example: if
abcde stock is at 150 and I have an otm call position such as -3 155/+15
160/-5 165 I would look to buy in the 155s and possibly sell ten of the 160s
in a ratio with the short 155s. I'd keep five of the 160s as a hedge
against those far otm 165s
Or, supposing that a trade has a relatively wide range
of profitability by now (as opposed to, say, a single, narrow
butterfly), would you generally hold the OTM short legs all the way to
expiration, to maximize the gain and reduce commissions? Or, maybe
close everything as soon as you can lock in a decent overall return
of, say, 20%/50%/100% on your risk? (Nice problem to have, isn't
it??)
mc - it's more about risk than reward. As in the above example that short
155 strike is one I'm looking to buy in regardless of any other holding
simply because it is the strike that threatens to become a loss. I don't
focus at all on percentage returns and certainly wouldn't say "I've hit my
target, so time to get out." I don't trade with set targets in mind other
than an awareness of max risk levels that I can absorb. The profits are
whatever they are but seeing to the max risk tolerance is the essence of
trading to me.
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