15 lines
1003 B
Plaintext
15 lines
1003 B
Plaintext
that the 405-strike call is farther out-of-the-money and will lose its value
|
||
before the 395 call.
|
||
Say that after two weeks a big downward move occurs. Apple is trading at
|
||
$325 a share; the 405s are 0.05 bid at 0.10, and the 395s are 0.50 bid at
|
||
0.55. At this point, the lion’s share of the profits can be taken early. A trader
|
||
can do so by closing only the 395 calls. Closing the 395s to eliminate the
|
||
risk of negative delta and gamma makes sense. But does it make sense to
|
||
close the 405s for 0.05? Usually not. Recouping this residual value
|
||
accomplishes little. It makes more sense to leave them in your position in
|
||
case the stock rebounds. If the stock proves it can move down $70; it can
|
||
certainly move up $70. Because the majority of the profits were taken on
|
||
the 395 calls, holding on to the 405s is like getting paid to own calls. In
|
||
scenarios where a big move occurs and most of the profits can be taken
|
||
early, it’s often best to hold the long calls, just in case. It’s a win-win
|
||
situation. |