Super DITM calls: cant get out!

[KohPhiPhi]

Hey option traders, what would you think of the following scenario?

Imagine you bought a call LEAP and price has been moving in your direction. So much so, in fact, that Delta is now well over 90 and, while there's still plenty of time left to expiration, there's not much extrinsic value left. Therefore, you reckon it's time to sell-to-close and pocket the profits.

Unfortunately, the LEAP is now so deep-in-the-money that there's hardly any liquidity at these levels and bid/ask spreads are just bad! Obviously, you could pay up for an early assignment, sacrificing the one or two bucks left in extrinsic value, and then sell some covered calls against the assigned shares hoping to finally get closed out of the position altogether. However, that means that you have to have plenty of cash available for the shares assigment.

So... other than the early assignment, can you think of any other way to unwind a super deep-in-the-money LEAP when liquidity dries out?

Thank you very much!

 

[destriero]

Hey option traders, what would you think of the following scenario?

Imagine you bought a call LEAP and price has been moving in your direction. So much so, in fact, that Delta is now well over 90 and, while there's still plenty of time left to expiration, there's not much extrinsic value left. Therefore, you reckon it's time to sell-to-close and pocket the profits.

Unfortunately, the LEAP is now so deep-in-the-money that there's hardly any liquidity at these levels and bid/ask spreads are just bad! Obviously, you could pay up for an early assignment, sacrificing the one or two bucks left in extrinsic value, and then sell some covered calls against the assigned shares hoping to finally get closed out of the position altogether. However, that means that you have to have plenty of cash available for the shares assigment.

So... other than the early assignment, can you think of any other way to unwind a super deep-in-the-money LEAP when liquidity dries out?

Thank you very much!

You're going to have to bite the bullet and offer the MMer a discount arb. Or you could simply sell a higher strike to complete a DITM bull vertical, but you'll have the same problem with microstructure/liquidity.

These things are inherently illiquid due to moneyness.

You could buy the same-strike/tenor put, ostensibly it's a tight NBBO, and short the shares to complete the reversal, but I don't know who you're using to clear these trades.

 

[traider]

Depending on the name, there could be hidden liquidity. If you have a good estimate of the value of the option (use put call parity and price) you can slowly work the ask down until u get a fill. MM will take it once there is enough edge but you have to do it in very slow market conditions

 

[destriero]

Depending on the name, there could be hidden liquidity. If you have a good estimate of the value of the option (use put call parity and price) you can slowly work the ask down until u get a fill. MM will take it once there is enough edge but you have to do it in very slow market conditions

Yeah, just work inside the NBBO. Intrinsic less a number you're willing to take. Obviously DO NOT go to market.

 

[traider]

Do not offer too much over fair value though

 

[guru]

other than the early assignment

There shouldn’t be any need to exercise it. As mentioned above, adjust your order until you get out, which should give you a better price than losing the whole remaining extrinsic premium, however small, which is equal to the price of the put at the same strike, btw.

 

[smallfil]

Hey option traders, what would you think of the following scenario?

Imagine you bought a call LEAP and price has been moving in your direction. So much so, in fact, that Delta is now well over 90 and, while there's still plenty of time left to expiration, there's not much extrinsic value left. Therefore, you reckon it's time to sell-to-close and pocket the profits.

Unfortunately, the LEAP is now so deep-in-the-money that there's hardly any liquidity at these levels and bid/ask spreads are just bad! Obviously, you could pay up for an early assignment, sacrificing the one or two bucks left in extrinsic value, and then sell some covered calls against the assigned shares hoping to finally get closed out of the position altogether. However, that means that you have to have plenty of cash available for the shares assigment.

So... other than the early assignment, can you think of any other way to unwind a super deep-in-the-money LEAP when liquidity dries out?

Thank you very much!

If it is a call LEAP and plenty of time, what is the problem? Each day, the number of options contracts change. Wait for higher liquidity then, sell it then. If prices continue to advance then, your profits will only rise.

 

[destriero]

dumbphuckitis has some brain swelling. It's got almost nothing to due with duration. So risk it becoming a 70D call (not through vola) in lieu of trading when he would like?

 

[MrMuppet]

sell puts with the same strike and short shares

 

[taowave]

for shits ang giggles,quote the buy write(or conversion) and see if it trades mid...
Then flip the stock(and put if its the conversion)..

Hey option traders, what would you think of the following scenario?

Imagine you bought a call LEAP and price has been moving in your direction. So much so, in fact, that Delta is now well over 90 and, while there's still plenty of time left to expiration, there's not much extrinsic value left. Therefore, you reckon it's time to sell-to-close and pocket the profits.

Unfortunately, the LEAP is now so deep-in-the-money that there's hardly any liquidity at these levels and bid/ask spreads are just bad! Obviously, you could pay up for an early assignment, sacrificing the one or two bucks left in extrinsic value, and then sell some covered calls against the assigned shares hoping to finally get closed out of the position altogether. However, that means that you have to have plenty of cash available for the shares assigment.

So... other than the early assignment, can you think of any other way to unwind a super deep-in-the-money LEAP when liquidity dries out?

Thank you very much!