"How To Close Bull Call Spread?"

"How Do I Close Out a Bull Call Spread?"

"I have position bull call spread in QQQQ Buy OCT09 41 CALL with opton price $1.62 and sell QQQQ OCT09 42 with price $0.69. Question: if the price in the expiration day of QQQQ in $45 then how do I close this position to get profit whether let them expired or I close it one by one? thank you."
- Asked By Sumitro on 7 Oct 2016

Answered by Mr. OppiE

Hi Sumitro,

Before we go into what you should do to close out this QQQQ Bull Call Spread, I am concerned that the position might be put on wrongly or without sufficient consideration or calculation.

The net debit of your position when you first put it on is $1.62 - $0.69 = $0.93. This makes its breakeven point at $41 + $0.93 = $41.93 and a maximum profit potential of only ($42 - $41) - $0.93 = $0.07. Which means that if you bought one contract of each leg, your maximum return would only be $7 before commissions. Put commissions into the picture and you will never be able to turn a profit with such a tight position. Are you sure you went through these calculations before putting on the position? In fact, your reward/risk ratio for this position is a sad 7 / 93 = 0.07! Risking $93 just to make a maximum profit of $7. Is that really your intention? I suspect you put on the position without proper mentoring or study on the bull call spread. Yes, the Bull Call Spread looks simple enough but it still takes proper planning to get right. Please read our Bull Call Spread Tutorial for the mathematics involved.

Now, back to your question. If QQQQ ends up at $45, both call options would be in the money. This means that in order to close out the position you can either let it expire and then both legs auto-assigned, incurring commissions and losing any extrinsic value that may be remaining or you can simply close out both legs manually by buying to close the $42 calls first then selling to close the $41 calls. Which option makes more sense depends on which broker you are working with and what commissions they are charging you. Seriously, with an options trading position that lean, it really won't make much of a difference. However, if you are holding a really profitable bull call spread position at expiration, you would want to leg out of the position in order to further enhance your profitability.

In conclusion, either way works for closing a bull call spread at expiration but the main take away for you is that you should do more careful calculations before executing any options strategies or you may end up with an options trading position that can never be profitable after commissions.

Important Disclaimer : Options involve risk and are not suitable for all investors. Data and information is provided for informational purposes only, and is not intended for trading purposes. Neither www.optiontradingpedia.com, mastersoequity.com nor any of its data or content providers shall be liable for any errors, omissions, or delays in the content, or for any actions taken in reliance thereon. Data is deemed accurate but is not warranted or guaranteed. optiontradinpedia.com and mastersoequity.com are not a registered broker-dealer and does not endorse or recommend the services of any brokerage company. The brokerage company you select is solely responsible for its services to you. By accessing, viewing, or using this site in any way, you agree to be bound by the above conditions and disclaimers found on this site.

Copyright Warning : All contents and information presented here in www.optiontradingpedia.com are property of www.Optiontradingpedia.com and are not to be copied, redistributed or downloaded in any ways unless in accordance with our quoting policy. We have a comprehensive system to detect plagiarism and will take legal action against any individuals, websites or companies involved. We Take Our Copyright VERY Seriously!

Site Authored by

Contact Us

Email : [email protected]
Head Office Singapore

Want To Invite Us To Talk or Give Options Seminars?
Please Email Details To: [email protected] and we will get in touch with you ASAP.

Connect With Us