Super DITM calls: cant get out!

[destriero]

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 sell 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.

Sell the put.

 

[KohPhiPhi]

Sell the put.

Thank you for the response. I am not sure I understand though: would you mind explaining how selling the put at the same strike would close my long LEAP?

Thanks!

 

[destriero]

Thank you for the response. I am not sure I understand though: would you mind explaining how selling the put at the same strike would close my long LEAP?

Thanks!

I was making a correction to my earlier post. Short (not buy) the same strike put and short the shares. You'll be long the synthetic shares from the option strike and short natural shares. It's a reversal (reverse-conversion).

Shorting the put converts the long call into long synthetic shares. Shorting the put also allows you to avoid any edge loss due to closing the DITM at unfavorable prices.

 

[taowave]

if you tell us the option,i can check the buy write/conversion for you...

 

[MrMuppet]

Thank you for the response. I am not sure I understand though: would you mind explaining how selling the put at the same strike would close my long LEAP?

Thanks!

because short put and short stock = short call

pls don't tell me you trade options and don't know synthetics

 

[destriero]

99% of the ppl here don't understand synthetics.

Anyway, you'll free up almost all of your available requirement for holding the shares, and your price risk is zero.

 

[murray t turtle]

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......

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!

%%
WELL since you said ''DITM + moving in your direction'';
hit the bid \ask spread............................................You noted bid\ ask spread ''is bad .''
LOL, maybe , you saying you did not study that before entrance??
IF it was me, i would also print a color chart of that/ education is eXpensive / but that's how many of us learn.................................................................... Good question.
I hit the bid on a QQQ option/market order once + NO confirmation; called Options EXpress + they said ''don't worry about it /we are having trouble.'' Somewhat scary/ but worked out well, wide bid \ask spread even on that liquid option.

 

[CharlesS]

Sell short an equal-delta amount of the underlying (U).

If U declines while the LEAP is still active, the net value of the position will likely increase, bc the delta of the LEAP will decline and its IV will likely increase.

Not sure, but I think the $ from the short will be available to you for new positions.

Of course if U has huge decline below the LEAP strike, you could conceivably lose money, and you'd have to do some position mgt, but if it is really DITM now, a net loss on the position may be low probability, esp if you manage it to prevent a loss.

Once the short U opens, you could also put in a limit order to replace the LEAP w/ a shorter duration call, to hasten closure of the entire position. Since you've already got the U short for a delta-neutral position, you can wait patiently until an acceptably tight spread becomes available on the duration change order. Once that order goes thru, you'd then of course close the short U.

Actually, once you get the short U in place, any of the other option strats mentioned could be executed -- the delta-neutrality of the position will free all of those executions from having to hurridly accept a poor spread on the option transaction.

 

[donnap]

Sell short an equal-delta amount of the underlying (U).

Yeah, either the reversal or this.

Both should be common approaches with ITM liquidity issues.

 

[destriero]

Sell short an equal-delta amount of the underlying (U).

If U declines while the LEAP is still active, the net value of the position will likely increase, bc the delta of U will decline and its IV will likely increase.

Not sure on this, but I think the $ from the short will be available to you for new positions.

Of course if U has huge decline below the LEAP strike, you could conceivably lose money, and you'd have to do some position mgt, but if it is really DITM now, a net loss on the position may be low probability, esp if you manage it to prevent a loss.

Once the short U opens, you could also put in a limit order to replace the LEAP w/ a shorter duration call, to hasten closure of the entire position. Since you've already got the U short for a delta-neutral position, you can wait patiently until an acceptably tight spread becomes available on the duration change order. Once that order goes thru, you'd then of course close the short U.

Actually, once you get the short U in place, any of the other option strats mentioned could be executed -- the delta-neutrality of the position will free all of those executions from having to accept a poor spread on the option transaction.

Sure, then he's bought a put at the call strike. That's fine, but then he may as well simply try to fill within the edge loss equivalent to the put. Unless he wants to be long the put in lieu of simply closing at an edge loss < the value of the put.