Holding Deep ITM Calls, What To Do Next?

[tommcginnis]

Tommcginnis, At the time of my purchase, BMY was around $45 and was really only creeping up and down. I was just hoping we'd be at $60 by Jan '21, didn't expect to get there a year early. This was one of my first option transactions, so I'm still fairly new to the strategy. Obviously I got lucky with this one. Anyway, unless it drops below $60, at which point I would sell, I would just assume to hold until expiration, as it's looking strong, but again, I don't know if it would behoove me to take some sort of action here or not. Let's say I believe we'll hit $70 before expiration, what would be the preferred route to take?

The ONLY thing that matters is what YOU expect to happen, going forward. Up? Down? Sideways? (Or more particularly [as the asset is a long call], Up? Up greater than theta-burn or vol deflation?)
The question is NOT what happens to BMY -- the question is what happens to Jan'21 BMY $40?
(Thus, BMY HAS to keep going up, just to have Jan'21 BMY $40 maintain a flat trajectory.
Now, for entertainment value, you might consider selling shorter-term BMY OTM calls against the $40 -- for example, if you repeatedly sold $70 calls for a while? Hmmmm? But you'd be trading a sure thing for a calendar spread. Oi.

But these are your choices, not others.

 

[spindr0]

I'm going to assume that these are standard BMY options not the adjusted ones with the cash and contingent value right attached. If so then your Jan '21 BMY $40 call has a near 100 delta with very little time premium so in effect, you hold the equivalent to the equity position. What to do depends on whether you're outlook going forward is bullish, bearish or neutral (see the 3 questions posed by TOm McGinnis).

If I was in this position, I'd consider 3 possibilities:

1) Book the profit and find another good trade

2) Roll the calls up, booking some gain and lowering the cost basis. Because you'll be giving up some delta, perhaps buy a few more calls at the higher strike to recover some long delta.

3) If modestly bullish, collar the position (creating a pseudo synthetic vertical spread). As a random example, for about a buck you could do the June '20 $60/70 collar. Risk is current price down to $60 plus the buck. Potential gain is $70 minus current price less the buck. More bullish? Sell a higher strike.