Option Trading Article of the Week
Posted by Pete Stolcers on June 5
In today’s option trading blog, I will look at positions that last three months or less and I will describe why I don’t like debit spreads. A debit spread is created by buying a closer to the money option and selling a farther out option. There are a number of issues I have with this strategy. If I’m looking for a big move and I’m considering an out of the money spread, why not just buy the long call/put? Chances are that I’m capping off my profit and receiving very little in return by selling an option that is two…
Read the rest of Option Trading - The Problem With Debit Spreads.
Posted by Pete Stolcers on June 5
Question My question is about the appropriate exit strategy at expiration of a covered call I've written. When is it advisable to let an option get exercised; to roll straight out by purchasing the option at the same strike and selling another call farther out in time; or roll up and out. A few months ago, I sold an option on April 120 covered call. The premium at the time was about $7.50/share. I let the option become exercised at about $160, I think. Since it was so deep in the money, I decided not to roll up and out. But why would it have been a bad idea just to roll the option out to a later date, say July and thereby pocket another another premium? I don't recall exactly what were the option premiums for the April 120s and the July 120s, but there was a profit to be made.
Read the answer to Covered Calls - Should I Roll Up and Out?
