Calendar call-on-call

[NHS]

This is a Danish option.

Current position:
long 30 CALL Strike 280 exp July 2010 - debit 69
short 30 CALL Strike 290 exp marts 2010 - credit 34

I sold the CALLs when the underlying stock price was near 310 and the stock has now gone up to 360.

There are no on-line prices for the strikes as they are deep in the money. My calculator estimate current prices to be:

long 30 CALL Strike 280 exp july 2010 -> 84
short 30 CALL Strike 290 exp marts 2010 -> 70

My idea was to wait for near exp at marts and buy back the short calls and sell again in July at the same strike (290). I'll earn the current time-value and get more time-value in the July period and see what happends. At some point I would also roll the long call to September maybe a higher strike (290) and make the write again for the short calls – and basically continue this. I have a limit here that my long call strike must be the same or lower that my short calls.

But what would be the best next move? Given that I think the stock can stay at current level (360) or go higher?

 

[MTE]

The position you have is called a diagonal spread. The best outcome for you is for the stock to be at the short strike in March. If it is too high above then you would have a loss given that you paid 35 for it. There is no magic way to undo the loss. Depending on the current market prices you may roll up and out the short.

 

[NHS]

The position is in some books called a calendar call-on-call diagonal spread, but never minds that. I agree we cannot use magic. My problem is that I sold the calls to late – I have had the long position for some time before, and the stock price moved.

The best case now seems to be to wait near exp and take the short loss and write calls again in July – if the stock is stable I’ll earn more at exp in July.

I also read about a roll-up-out of both elements of the position.