options are annoying sometimes!

[Fermion]

ARGH! I can't get out of this trade without feeling cheated somewhat!

I bought 50c of Intel Jan 2015 $18 calls and sold 50c of Intel Jan 2014 $23 calls for net debit of $4.02 back in Oct 2013.

Today Intel is sitting at $25.60 and I want to exit the spread manually instead of waiting for the $23 calls to be exercised. The problem is there is no volume on the $18 calls.

One would think you could sell this spread at $5 since there is a year of time value left in the 2015 calls and only a couple of days left in the 2014 calls and the difference in strikes is $5. Grrr...the best it looks like I can get is $4.98 and I don't want to give up that $100

/end rant

 

[haha]

ARGH! I can't get out of this trade without feeling cheated somewhat!

I bought 50c of Intel Jan 2015 $18 calls and sold 50c of Intel Jan 2014 $23 calls for net debit of $4.02 back in Oct 2013.

Today Intel is sitting at $25.60 and I want to exit the spread manually instead of waiting for the $23 calls to be exercised. The problem is there is no volume on the $18 calls.

One would think you could sell this spread at $5 since there is a year of time value left in the 2015 calls and only a couple of days left in the 2014 calls and the difference in strikes is $5. Grrr...the best it looks like I can get is $4.98 and I don't want to give up that $100

/end rant

Pobrecito!

 

[LOL!]

Yep, back in the days when I played with options, I read about all these techniques to do this and do that, but there was never anybody to take the other side of the trade because no one is that stupid.

 

[JPatrick]

Yup. option premiums have taken a bit of a tumble since T-Giving.
I'm finding very few good ideas...A sign of something for sure

 

[Fermion]

Yep, back in the days when I played with options, I read about all these techniques to do this and do that, but there was never anybody to take the other side of the trade because no one is that stupid.

Oh, there are plenty of stupid people still out there that you can sell options.

The only big reason why I don't want to wait and let it auto close at $5 is my account does not have enough cash to cover an early assignment on the $23 calls I am short. My broker does not automatically exercise the $18 options to cover the $23 ones if they are not the same expiration.

One time I had some Apple options early assign on a diagonal spread like this one and when I logged on my account was negative $200,000! with a warning that I need to bring it into balance within a day.

 

[FIRE'd@51]

The only big reason why I don't want to wait and let it auto close at $5 is my account does not have enough cash to cover an early assignment on the $23 calls I am short. My broker does not automatically exercise the $18 options to cover the $23 ones if they are not the same expiration.

Congrats on a nice trade.

If you are really "hell-bent" to unwind this trade at intrinsic value, you could tell your broker that you want to remain short 5,000 shares of INTC when the 23's are assigned. Since these are completely hedged with your long 18-strike calls (which you can exercise at your discression to cover the short), you shouldn't have to post any margin. You will probably want to exercise your long 18's before the next ex-dividend date the first week of February.

I have done this in the past to avoid paying the bid-ask spread(s).

 

[Fermion]

Congrats on a nice trade.

If you are really "hell-bent" to unwind this trade at intrinsic value, you could tell your broker that you want to remain short 5,000 shares of INTC when the 23's are assigned. Since these are completely hedged with your long 18-strike calls (which you can exercise at your discression to cover the short), you shouldn't have to post any margin. You will probably want to exercise your long 18's before the next ex-dividend date the first week of February.

I have done this in the past to avoid paying the bid-ask spread(s).

That would maybe work except this is a IRA and so is a cash account. Technically you shouldn't be able to go negative in an IRA since you can't add money but as you point out the long 18 calls totally cover the assigned 23s. I have done plenty of these spreads in that IRA but I normally close them out early when the profit gets really close to the max.

It is that dividend that is keeping the $18 calls selling at zero time value even though they have a year until expiration.

I think I will just take 4.98 today if I can get it. Still a 22% profit in 3 months.

 

[FIRE'd@51]

That would maybe work except this is a IRA and so is a cash account. Technically you shouldn't be able to go negative in an IRA since you can't add money but as you point out the long 18 calls totally cover the assigned 23s. I have done plenty of these spreads in that IRA but I normally close them out early when the profit gets really close to the max.

Yes, being that it is an IRA you can't do what I'm suggesting. I've only done this in my taxable margin accounts.

I'm surprised that your broker allows call spreads in an IRA - mine (Vanguard) won't allow call spreads in an IRA because of the early exercise problem. In fact, Vanguard won't even allow call spreads in an IRA on cash-settled European options, such as SPX.

 

[Fermion]

This one is Optionshouse but I also have an IRA at Etrade and they allow spreads (currently holding 3 Jan 2015 $400 Apple calls and short 3 April 2014 $520 Apple calls...spread at $105, bought at $71, full value $120 in April).

 

[utrecht]

This one is Optionshouse but I also have an IRA at Etrade and they allow spreads (currently holding 3 Jan 2015 $400 Apple calls and short 3 April 2014 $520 Apple calls...spread at $105, bought at $71, full value $120 in April).

If you dont mind me asking, when did you open this Apple spread?

 

[Fermion]

If you dont mind me asking, when did you open this Apple spread?

Back in Sept 2013. Checking my records, I actually adjusted it several times during Sept/Oct because I had some free trades in the account. I never purchased it lower than $75 but I sold and rebought it during the volatility and now it shows my basis as $71.

I bet during the summer of 2013 you could have purchased it for $60.

edit: BTW I closed out the Intel spread for $4.99. Waiting 10 days for a penny seemed a bit silly.