Option Spread Exit Strategy
leo.t.butt
Dear Option Traders,
If I am in an option spread, what is a reasonable
exit strategy if the position is against me,
should I let the spread expire and take whatever
loss at that time up to the max, or should I lift
the spread at a predetermined point.
Any opinion will be appreciated. Thanks in advance.
Leo
Gary Funck
: Dear Option Traders,
Leo, one simple rule of thumb with spreads (and covered calls) that
are losing money is to always roll up (in value) or out (in time)
_if_ you can do so for a credit.
More aggressive traders may adjust the spread by adding more options
on the short side, when they roll. This increases their risk,
because now the position is more short than long, and thus will
have one/more uncovered options. However, such a recovery action
may be necessary to turn a loser into a modest winner.
Something else to consider: If the short options are deep in the
money, or expiration day is near, or the ex-dividend date is near,
with a healthy dividend, you need to be aware theat the short leg
may be exercised against you, at a net loss.
If you don't mind providing details on your current spread, time
remaining, and various alternatives, it would be easier to provide
more concrete advice.
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| Gary Funck ga...@intrepid.com
| Intrepid Technology Inc., Mountain View CA (415) 964-8135