Hedging A Debit Spread

[tommo]

Hi all,

Been a futures trader for a long time but finding a lot of opportunities in options but probably not as advanced as some on here and trying to learn.

If you had a debit spread that was onside, is there anyway to hedge it to lock in the fact you are onside the underlying without having to wait until expiry?

Eg
You are long the 100 call short the 105 call. The underlying is trading at 107. If it expired here you are at your max profit but still 10 days until expiry so a load of time decay needs to come out your short call. What would you do to prevent a move back to B/E or a loss? Is there an options play for this situation?

Thanks

 

[gaussian]

I found this:

https://www.the-lazy-trader.com/2012/03/lock-profit-vertical-spread.html

Looks like you can sell a further out credit spread to lock in some baseline profit.

 

[PoopyDeek]

Onside?

You can reduce your debit by selling the 105/110 call spread which results in a 100/105/110 long fly. If you're up on marks on your call spread then you will likely convert to the fly at edge.

You can convert to a condor by shorting the 110/115 call spread (see above).

You can roll it off by shorting a call spread further out in time.

You can add vol by buying a bear calendar or diagonal.

You can short underlying.

 

[tommo]

Thanks guys. Yeah was thinking about doing something with a fly. I guess selling the underlying puts me double short if it really starts to keep going up for no additional credit.

 

[traider]

Thanks guys. Yeah was thinking about doing something with a fly. I guess selling the underlying puts me double short if it really starts to keep going up for no additional credit.

any reason for switching from futures to options?

 

[PoopyDeek]

Thanks guys. Yeah was thinking about doing something with a fly. I guess selling the underlying puts me double short if it really starts to keep going up for no additional credit.

Your debit spread doesn't flip deltas, so you're always long which makes it an easy dynamic hedge. Once it's ITM you've got less juice in the vertical so I'd go with a vol-trade // underlying.

I recently bought a MSFT 30/40 call spread and converted to the fly for change. It expired outside the wings so don't be too quick to convert. More often it will make sense to simply close the position.

 

[tommo]

any reason for switching from futures to options?

I started my futures trading on a market making desk. I was never massively directional. More looking for correlations and hedges. Mostly spreading. Would scale in and out managing multiple legs across lots of markets. But still had a lot of ‘prediction’ involved.

since I’ve been in options it reminds me of the market making and trading around a position but SO SO many ways I can adjust positions with options. So many times with options I can be wrong about direction and still make money.

with futures if you don’t get your overall direction right it’s a lot harder to get money out the position.

 

[darwin666]

see. your question is rhetorical. the reason there is still 10 days left is why u dont make the full spread profit.. just close it and take the profit. any hedging COST money. it cud be deep ITM till last day and 1 hour before expiry become OTM.. anything can happen