Option Investor


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For any of you who read the bottom of today's WATCH list. I will give an example of what I meant by, instead of closing out a position,, buying the next strike long

Let's look at DSL we currently are short the November 50 Call. Instead of closing out the position for $0.05 or lower. You could possibly BUY LONG the November 45 Call for that same $0.05 and not only guarantee yourself a profit, but if that miracle reversal happens and DSL closes in the money against our open November 50 short position. The November 45 we would have purchased, instead of just closing our the position would be worth $5.00 a contract or $500....Now the reality of this happening is close to nil...But it is a much better strategy than closing our the short position for the same price. Once again, just a thought for you to ponder that can be used anytime a position goes your way significantly on any of your spread positions in the future.

if you had put on the long position of the NOVEMBER 45 call.

assuming that DSL closed at $51 on expiration, the DSL NOV 50, that we were short would have to be closed out for $1.00 or $100 per contract. However, the Long DSL NOV 45 call we bought would be worth $6.00 or $600 a contract. In otherwords, the nickel you spent on the long call for the same price you would have closed the Short 50 call for, gives you a chance to not only lock in your gain on the position, but potentially make a $5.00 or $500 profit per contract if the unthinkable should happen and we get a MAJOR BULLISH REVERSAL. ( like I said, which is not likely, in 7 trading days ). But nevertheless, if you are going to close out the position to lock in your profit, this is the better alternative, especially if you can BUY the DSL 45 call for the same price you could close out the the 50 call.

I hope this gives you an explanation of this strategy.

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