Rolling bull call spreads

[abandak 26]

Hi everyone, I was thinking about how to get out of a recent trade, and I thought it would be helpful to hear from some of the folks in the SO community if anyone has any thoughts they'd be willing to contribute. A few weeks ago, I spotted an inverted H&S pattern on VMC near the 200DMA (stock trading around $120), so I decided to buy some August bull call spreads on VMC (long 120C, short 125C - ~$2 net debit). Today VMC closed just above $130, and my call spreads are now worth ~$3.4 - nice gain, but just under half the profit potential of the spread. I was wondering if anyone has had any success or has any recommendations on rolling this spread into something non-directional to reduce risk, take some profit off the table, still access the rest of the potential gains, etc. or some combination thereof. Thanks!

Edited May 10, 2017 by abandak

[Yowster 9,180]

5 minutes ago, abandak said:

Hi everyone, I was thinking about how to get out of a recent trade, and I thought it would be helpful to hear from some of the folks in the SO community if anyone has any thoughts they'd be willing to contribute. A few weeks ago, I spotted an inverted H&S pattern on VMC near the 200DMA (stock trading around $120), so I decided to buy some August bull call spreads on VMC (long 120C, short 125C - ~$2 net debit). Today VMC closed just above $130, and my call spreads are now worth ~$3.4 - nice gain, but just under half the profit potential of the spread. I was wondering if anyone has had any success or has any recommendations on rolling this spread to reduce risk, take some profit off the table, still access the rest of the potential gains, etc. or some combination thereof. Thanks!

@abandakOption strikes are 5 apart so there aren't any strikes between 120 and 125 to roll your long calls up to.  If you don't want to close the whole thing because you think there is further upside, two choices come to mind:

• Sell enough of your spreads to guarantee a profit and leave the rest in play.  I'd keep a short leash on the remaining position as you are already sitting on a very nice percentage gain.
• Close all your spreads and re-open at higher strikes.

[abandak 26]

1 minute ago, Yowster said:

@abandakOption strikes are 5 apart so there aren't any strikes between 120 and 125 to roll your long calls up to.  If you don't want to close the whole thing because you think there is further upside, two choices come to mind:

• Sell enough of your spreads to guarantee a profit and leave the rest in play.  I'd keep a short leash on the remaining position as you are already sitting on a very nice percentage gain.
• Close all your spreads and re-open at higher strikes.

Thanks for the response, rolling to higher strikes might be the way to go. Any merit in selling a 5 wide OTM call spread, or would that not do anything for me?

[cuegis 683]

38 minutes ago, abandak said:

Hi everyone, I was thinking about how to get out of a recent trade, and I thought it would be helpful to hear from some of the folks in the SO community if anyone has any thoughts they'd be willing to contribute. A few weeks ago, I spotted an inverted H&S pattern on VMC near the 200DMA (stock trading around $120), so I decided to buy some August bull call spreads on VMC (long 120C, short 125C - ~$2 net debit). Today VMC closed just above $130, and my call spreads are now worth ~$3.4 - nice gain, but just under half the profit potential of the spread. I was wondering if anyone has had any success or has any recommendations on rolling this spread into something non-directional to reduce risk, take some profit off the table, still access the rest of the potential gains, etc. or some combination thereof. Thanks!

You cou lock in 100% of the gains through turning it into a "Box" which would involve buying the exact opposite spread with puts.

Buy 125 puts/Sell 120 Puts.

[abandak 26]

10 minutes ago, cuegis said:

You cou lock in 100% of the gains through turning it into a "Box" which would involve buying the exact opposite spread with puts.

Buy 125 puts/Sell 120 Puts.

Wouldn't that be equivalent to selling it now?

[Yowster 9,180]

35 minutes ago, abandak said:

Thanks for the response, rolling to higher strikes might be the way to go. Any merit in selling a 5 wide OTM call spread, or would that not do anything for me?

On the positive side, it would give you some downside protection and if at expiration the stock price is between your long and short spreads you'd get max value on your long spread and get to keep your entire credit on the short spread.

 

One the negative side, if the stock price continues to increase your additional gains on the long spread will be partially offset by losses on short spread.  The higher the stock moves, the more the losses on the short spread would hurt your overall position.  So if you chose to do this then I'd try to have some distance in between the strikes in your short and long spreads - and probably close the entire position if the stock price starts to move into your short spread strikes.

[abandak 26]

5 minutes ago, Yowster said:

On the positive side, it would give you some downside protection and if at expiration the stock price is between your long and short spreads you'd get max value on your long spread and get to keep your entire credit on the short spread.

 

One the negative side, if the stock price continues to increase your additional gains on the long spread will be partially offset by losses on short spread.  The higher the stock moves, the more the losses on the short spread would hurt your overall position.  So if you chose to do this then I'd try to have some distance in between the strikes in your short and long spreads - and probably close the entire position if the stock price starts to move into your short spread strikes.

So it looks like I can get around $1.8 for the 135/140 call spread, which would be almost all of the initial outlay for the trade. Profit at expiration would be maximized from 125-135. So if I opened this, I should think about closing if the price gets above $135?

[Yowster 9,180]

7 minutes ago, abandak said:

So it looks like I can get around $1.8 for the 135/140 call spread, which would be almost all of the initial outlay for the trade. Profit at expiration would be maximized from 125-135. So if I opened this, I should think about closing if the price gets above $135?

I would think so, because at that point short spread would be losing faster than your long spread would be gaining (since the long spread would be near its max).   I would also close the whole position anytime the value of the long spread gets near the max, which could happen as a result of stock price increase and/or getting closer to expiration date with stock staying above 125.