Help With Adjusting Short Credit Spread

[El OchoCinco]

On March 18, I sold an April 19 5X Bear Call Spread on NTES. Short the 250 calls and long the 255 calls. Underlying price then was about 243. Today it is about 278. I am still in this position. I will not go into the “why” as it is no longer important. The options have 9 days remaining. I know one strategy is to let it go and eat the $2,500. But, is there something better than that? Any ideas and help would be greatly appreciated.

You wont go into the why of how come you held a position that has moved 23 points against you, that has moved almost 10% in the wrong direction?

and people wonder why they fail at trading....

 

[kj5159]

Unless you are lucky, have good ability at predicting future underlying direction, or just want to gain somewhere around the risk-free rate, IMHO just throwing on spreads and/or short option trades for no other reason than the conventional wisdom of "more options expire OTM, than ITM, etc, etc..." is not going to get you very far.

A possible exception is to run lots of OPM and sell far OTM strikes, thereby hoping you get enough returns and fees to pad your retirement before the inevitable wipeout happens.

I haven't explored it much but I believe there is opportunity in trading volatility surface discrepancies. Options pricing models (and trading desks) are far from perfect and there exists volatility skew between months and strikes. I think this is (one) of the specialties of traders here like Des, sle, big short, others. Certainly, this type of trading will take much study.

I totally agree with you. I'm particularly interested in the relationship between the prices of option contracts with the same expiry and different strikes (mostly vertical spreads but just looking at segments of the chain itself rather than a particular vertical spread).

I have nothing concrete yet, haven't had the time to fully devote to understanding it but I'm highly convicted that the need/whatever to keep vertical spreads (any number of strikes) at certain prices creates pricing differences that wouldn't exist if for some reason the options all traded independently (obviously impossible and rediculous but it's useful in the breakdown of the problem to be solved).

So for instance you have an XYZ Dec 19 $100 call trading at $5 and the $105 call at $4, say you enter the trade now (long or short doesn't matter) and a few months down the road in say September, the spread will still be $1 or very close to it, while the options have deteriorated significantly, they might be at $1.50 and $2.50. To me this seems very out of whack although I haven't been able to look into it yet so I have no idea why.