Short SPY Call spreads into next week

M

MacThor

Hey gang,

I've got a bunch (for me an oversized position) of short call spreads expiring next Friday. I usually wait and let them expire worthless or buy the short leg for .05 or less.

With the drop over the past week I've got a nice paper profit. Guess I'm nervous that the Fed might pull some shenanigans next week and rip the market higher.

I could close the short legs now for less than I received for the spread, lock in a smaller profit and freeroll the long calls as lottery tickets? Close the whole position at a tidy profit? Or let the theta decay as usual?
 
Even if the Fed wasn't an issue next week you should close them out. There just isn't any long term benefit to letting options expire or waiting for them to be a nickel. Close them out when you've captured the bulk of the decay and move on to new trades.

I almost never like the idea of closing partial positions, but in this very rare instance if the calls are already paid for, you could leave them and see if they will pay off.

Btw, I also think the possibility of a rip higher next week is there. They will move on rates, but it wouldn't surprise me at all if the market actually reacts positively to the news. With the VIX touching 20 yesterday and VVIX breaking 115, it's a pretty hedged market already.

I think there might be a big sigh of relief after the announcement and we could test the S&P highs pretty quickly. VIX could see a 14 handle by next Friday. Then again it could see 30+ :)
 
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