If you took the following XLF stock/option positions, how would you know when to vend the call, puts, stock?
Write/sell Feb 2008 covered calls against XLF(28.28 present share price) shares for .16 per share, $16.00 per contract.Buy the Jan 2010 31$ Call for 3.50
Buy 28$ LEAP puts so you are hedge to a degree for whichever route the market moves.
Would you hold limit sell on these positions? Due to time decay, when would you be wanting to exit the short and longer option if they did not pan out?
Answers: To label sure I understand your proposed spread, permit me restate it.
(1) Buy to open 100 shares XLF (a) $28.00 = $2,800 *
(2) Sell to get underway 1 Feb. 2008 $31 call (a) $0.16 = $16
(3) Buy to unambiguous 1 Jan. 2010 $31 call (a) $3.50 = $350
(4) Buy to instigate 1 Jan 2010 $27 put (a) $4.15 = $415 *
Total cost to open = $3,549
* I used the actual closing price of $28.00
* There is no Jan 2010 $28 put so I used the $27 put
Assuming this awareness is correct, it is not a combination I would find attractive. Even if I did find it attractive, I would simplify it. Since a long stock and a long put is equivalent to a long call, I would replace the stock and the put next to a Jan 2010 $27 call. That would brand the spread
(1) Sell to open 1 Feb. 2008 $31 give the name (a) $0.16 = $16
(2) Buy to open 1 Jan. 2010 $31 beckon (a) $3.50 = $350
(3) Buy to open 1 Jan 2010 $27 appointment (a) $5.10 = $510
Total cost to open = $844
Of the $844 cost one and only $100 is intrinsic value. The remaining $744 is extrinsic helpfulness, sometime called time helpfulness or time premium. Since extrinisc value depends largely on the implied volatility of the option, I would only want to unscrew this spread if I believed implied volatility was plausible to increase. Since implied volatility is more likely when the price of the underlying decline, which works against this spread since it is decidedly bullish.
As a result the only passageway this spread is likely to show a significant profit is if in attendance is a major increase contained by the price of the underlying. I am not a fan of betting on big change, which is why I would not be likely to hold this position within my account.
<<<Would you enjoy limit sell on these positions?>>>
When I sold them I would likely use a aim order, but I probably would not hold a limit demand outstanding at all times.
<<<Due to time rust, when would you be wanting to exit the short and longer options if they did not jar out?>>>
Time decay is minimal for option over a year away from expiration. I usually would not worry roughly time decay until a few months past expiration. Vega and delta are going to be much more important than theta contained by this spread.
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