We are recommending the following adjustment to our STZ position in Portfolio #1.
We are recommending closing the STZ 37.5/42.5 call spread for a NET DEBIT of $3.90.
The BID/ASK is $3.50 - $4.10.
as usual we will look to split the bid/ask.
After and only after closing out the STZ 37./42.5 call spread above will we place the following.
We are then going to roll up and place the following call credit trade listed below on STZ.
NOTE: The new call spread trade is for 30 contracts, but the strike price is only 2.5 points apart,
hence the additional margin will be only $2,500 more, $7,500 less the credit as opposed to the original STZ call spread which
was $5,000 less the credit.
If we are successful and placing this trade this should reduce the loss on the original trade down $1,300 if we get the position to expire in March.
Additionally, if we get a pull back in the stock we will be able to add the put side to generate additionally premium to potentially reduce the loss even further.
I usually prefer to close out a losing position and go on, however I think we need to make an adjustment here especially after the large run up on STZ after the investor sentiment change on Fed's monopoly on beer distribution.
We will see how this plays out.
I do not want to place a put credit spread just yet as the court may still decide to react unfavorably to STZ in the short term. which could provide us an opportunity to place the put spread later.
For now we will just roll the call position up.