Buy to Close Long Leg Bull Call Spread

buddtholomew · Oct 29, 2011

200 SPY long @ 118
Sell 2 Dec Calls SPY @130 for 500
Buy 2 Dec Calls SPY @127 for 850
Net debit of 350
Break even @ 130.50

SPY Calls are currently trading at 5.01 x 200 = 1002 for a gain of $152. How does one decide whether to close the long leg of a bull call spread that is ITM with a premium of 3.41?

Best-
Budd

buddtholomew · Oct 30, 2011

There are several views, but no responses. Do I need to rephrase the question or provide additional details. I am a novice options trader and welcome any feedback.

Best-
Budd

probe1957 · Oct 31, 2011

I am a newb too but personally, I wouldn't close out the long leg. Not unless you're willing to accept the risk of being short. You have to be patient with verticals.

newwurldmn · Oct 31, 2011

It depends on your view of what will happen in the markets. Is that what you are asking?

spindr0 · Oct 31, 2011

Quote from buddtholomew:

There are several views, but no responses. Do I need to rephrase the question or provide additional details. I am a novice options trader and welcome any feedback.

Yep, please rephrase. It's not clear what you're asking.

buddtholomew · Oct 31, 2011

The question is whether I paid too much in premium for the 127 CALL option. The premium is now 3.52 versus 4.31 on 10/28.

buddtholomew · Oct 31, 2011

The question is whether I paid too much in premium for the CALL option. The SPY 127 is now trading at a premium of 3.52 versus the 4.31 on 10-28.

stoic · Oct 31, 2011

Quote from buddtholomew:

200 SPY long @ 118
Sell 2 Dec Calls SPY @130 for 500
Buy 2 Dec Calls SPY @127 for 850
Net debit of 350
Break even @ 130.50

SPY Calls are currently trading at 5.01 x 200 = 1002 for a gain of $152. How does one decide whether to close the long leg of a bull call spread that is ITM with a premium of 3.41?

Best-
Budd

I'm not sure just how you got these numbers.
1) on the debit Call spread the break even would be 128.75
2) I can see that if the long side was sold for 4.25 and now can be Sell To Close @ 5.01 would be a gain on that side only of $1.52, but whats this about the 3.41. My guess is your stating the intrinsic amount.

However the strategy initially is bullish on the debit spread, the sell to close the long leg results in a covered call. one must ask ones self the reason for the change in outlook. As long as your willing to sell @ the short strike if it gets there, I see nothing wrong.

(and I don't care whats been said here against covered calls, most of it is wrong, I'm a big advocate of covered calls and I've done very well with them.)

iceman1 · Oct 31, 2011

Quote from stoic:

(and I don't care whats been said here against covered calls, most of it is wrong, I'm a big advocate of covered calls and I've done very well with them.)

in bull markets and bear markets??

spindr0 · Nov 1, 2011

Quote from stoic:

(and I don't care whats been said here against covered calls, most of it is wrong, I'm a big advocate of covered calls and I've done very well with them.)

You're right and everyone else is wrong. Got it.