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Sorry I this post is a repeat, but it never got back to me so I don't
know if it ever made it to the list. Trying again........
On 9 Aug 97 at 23:03, James M. Johnson wrote:
> I need some advice about the best way to close a small but profitable
> stock option position.
>
> I am long two September 30 calls (NBQIF)for NBTY (Nature's
> Bounty--vitamins and such). The stock has risen dramatically in the last
> three days and closed at 34 1/2 on Friday (not a bad ride considering
> the way everything else moved on Friday). I bought the options at 2
> and they are now bid 5 with five weeks to expiration. The stock
> showed no signs of turning, so I think there is still further upside
> to this advance.
snip.......
If I understand you correctly you wish to protect your open trade
profit of 3 points per contract. What is the the bid price of the 35
calls? If it is 3 (I'm guessing) you could sell two of them short
and bank your 3 points right there. The long 30's could then decline
all the way back down to 2, where you bought them, and you would
still have your present profit, so you are protected all the way down
to a price of 32 at expiration. If the stock continues to advance
and closes at or above 35 at expiration, your profit will increase to
6 points per contract. The only downside is that your profit is
capped at 6 points - you will not benefit from any advance above 35.
Another way to look at is - you paid 2 and received 3, so net cost
was -1. The spread is 5 points, so you make 6 altogether. You
will have legged into a bull spread.
Bob Young
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