Advice for long leaps position

M

mphill47

I am long BAC Jan15' 7$ calls which are well into the money with the stock selling for $16.40.
Would it be a good idea to spread this long position by selling the BAC Jan15' $20 calls?
I guess the question is whether it is best to just hold the long position or reduce my cost now by selling the $20 calls. I have never used this strategy buy wonder what the pros would do at this point.
 
I think the biggest risk to your profits is a market pull back which BAC will share.

The market as a whole seems 'overextended' to many writers and the more people that think that the more likely it is we will have a pull back.

By selling the $20 call you are saying that you think BAC will not go past $20... but if it will not go past $20 will it not pull back from its recent upward trend?? Will the premium for the $20 calls compensate for a pull back?

Like many people I believe we are due for a market pull back and If I were holding BAC $7 calls I would just close the position.

I am backing off many of my long positions and going to cash or bearish spreads in anticipation of the market topping out somewhere around here.
 
Very interesting. I would be inclined to agree except for the fact that the deep ITM calls are like owning the stock at a reduced price. With the economy getting better it's hard to play market timer and get out. Since the leaps don't expire for a year I may roll over to 2016 leaps and hold tight. I just wondered how many out there spread long calls when your making money.
 
Hmm.

Is it your hypothesis that BAC has further to go on the upside and you want to tap into that BUT would like to take some money off the table just in case??

Since the Jan '15 $7 call just sold for 9.40 and BAC is at 16.41 the option you are holding is selling for intrinsic value... theta is zero so you have essentially no time decay loss in the call in holding until expiration... your only liability is delta.

The Jan '16 15 strike option is selling for $3.60 of which 1.41 is intrinsic and 2.19 is invested in theta. If you roll over and up to the Jan '16 15 strike you will take a substantial amount of your gains off the table and still be able to reap additional gains should they occur... while limiting your downside liability. Holding this call WILL lose money if BAC stays where it's at or decays.... but of course your liability is well covered by your gains on the '15 call.

The Jan '16 15/20 spread which would cost $2.03 would take additional money off the table by selling any gains above $20.

It all depends on your view of the next two years.

I almost always use vertical spreads over straight calls as I think the probability of far out gains is usually over priced in the higher call... that may be because I am something of a perma-bear.

http://finance.yahoo.com/q/bc?s=BAC&t=my&l=off&z=l&q=l&c=

:-)
 
I would rather do diagonals, and sell calls a couple weeks or a month out that will pay you a tidy, regular sum and have strikes that are unlikely to get hit. Every 2-4 weeks, repeat.

Might want to have cheap commissions for this. Would also avoid the week of earnings.
 
Quote from mphill47:

I just wondered how many out there spread long calls when your making money.
More...

Tons of people do..probably the most common option trade there is....covered call or short put. The only twist I might put in is selling a short put along with the short call if I were bullish.
 
Quote from Bry:

I would rather do diagonals, and sell calls a couple weeks or a month out that will pay you a tidy, regular sum and have strikes that are unlikely to get hit. Every 2-4 weeks, repeat.

Might want to have cheap commissions for this. Would also avoid the week of earnings.
More...

For instance, the Jan 24th 18 strike calls sell for $8 each. If you could get cheap commissions and about $8 every 3 weeks for a year, that is maybe another $130 for each of your options each year.

But that means the uptrend continues until Jan. 2015. I think it will, barring a spring thru summer correction, which is fine for such a plan.
 
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