Post by mark on Jan 10, 2013 22:46:52 GMT -8
A surprise question from a gambler . We went into option trading hoping to risk a small capital for a much larger gain. Your current position is tantamount to risking a large capital for a tiny bit more. I believe in closing the position once 90% of max gain is achieved. IMHO, you've two choices:
a. Roll to BCS (Feb $500/$550) or
b. Roll to BCS (Jan 14 $600/$650)
There are other options. For instance, as you mentioned, you could exercise the option to buy the shares if you have enough money (or sell part of the spread to do so). This would allow you to acquire the shares and not declare gains until you sell (I am unclear if you sell before 1 year if it is long term cost basis or short term- anyone?) I am sitting on a large amount of 400 -500's and I plan to exercise some of them. Will need to sell some in the next week. I have been discussing the situation with my broker and I suggest you do the same.
I'm not sure what you mean by this. If I exercise the long half of the BCS, I still have the short side of the BCS to deal with. And that short side has HUGE gains that would be taxed in 2013 when I dispose of it. Huge meaning that I sold it (short branch of BCS) at about $100 or so and now it is trading under $26. Seems like the strategy you are describing pulls in capital gains and defers the capital loss (on the long call).
Mace, right now it is sitting at about 87% of max gain.
On a side note, holding the spread in the past few months (as opposed to selling it and rolling it into another OTM spread) has not been a good tactic: even as the stock has gone down, the spread, in fits and starts, depending on the (unusually high) IV, has gone up in value, which would not have been the case with the rolled spread (if ATM or OTM)
What's wrong with the spread gaining value? I like when that happens!