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I started paper trading options through TOS to try different strategies and get a feel for how options trading works . . . without burning through my money. I have several open trades but the first one I "need" to take action on is the following:

I have a QQQQ March 07 43/45 bull call spread. The QQQQ closed yesterday at $44.86. With one month to go until expiration and time decay lurking, what is the favored strategy to close this position? Hold out a few days for $45, close it today, roll it or something else? Let's assume I feel the QQQQ will continue its upward path next month.

Thanks.

speed

P.S. Jim, Thanks to you for all your input to this board. I consider you a guru!
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No. of Recommendations: 2
<<what is the favored strategy to close this position?>>

Hi Speed,

Thanks for your kind words.

My rule of thumb is to close out a spread when its value is 90% of the difference between the strikes. Since you have a 2 point spread, 90% would be 1.80. Currently, you can sell your spread for 1.40, so I would hold on for 1.80 based on your assumption that the QQQQ will "continue its upward path next month."

<<time decay lurking>>

I don't know what you paid for the spread, but please keep in mind that in-the-money (ITM) debit spreads can have positive theta, so don't assume that your spread loses money with the passage of time. A debit spread has positive theta if the price of the stock is greater than the price you paid for the spread plus the value of the long strike price.

For example, if you paid $1.25 for your spread, your breakeven is $44.25 (43.00 + 1.25). If the QQQQs are trading at a price above $44.25, then your spread has positive theta and you make money with the passage of time.

Individual options that you are long ALWAYS have negative theta; spreads can have either negative or positive theta.

Jim


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No. of Recommendations: 0
I started paper trading options through TOS to try different strategies and get a feel for how options trading works . . . without burning through my money. I have several open trades but the first one I "need" to take action on is the following:

I have a QQQQ March 07 43/45 bull call spread. The QQQQ closed yesterday at $44.86. With one month to go until expiration and time decay lurking, what is the favored strategy to close this position? Hold out a few days for $45, close it today, roll it or something else? Let's assume I feel the QQQQ will continue its upward path next month.



I was at one of the TOS training sessions last week and he spoke about paper trading. He said no one really paper-trades the way that they trade in real life and instead suggested trading one-lots while practicing new strategies. I thought his idea had a lot of merit. You might want to give it a shot even though you appear to be more diligent than most paper-traders and are really trying to understand how the trade works. Also, I'd ask TOS for $1.50 commissions for single contracts, they did it for me without my having any kind of real volume.

Obviously has a commission interest in having people trade live, but I don't think this their real motivation for the suggestion. One of the other suggestions they made was to "close your junk" or buy back options when they are almost worthless rather than let them expire. They feel so strongly about that strategy, that TOS charges no commission for closing trades of under .05.
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No. of Recommendations: 2
I agree, paper trading is not the same as using the real deal. Even though TOS gives me 100k of paper, I'm using only the "capital" I realistically have available and trading realistic transaction sizes (for me). You're right, I'm trying to understand how prices and greeks move. It seems easy to watch positions move up and down daily but I want to learn how to handle approching expiration dates or my midstream decisions to close a trade.

Thanks for the commission tip. I'll definitly ask for the reduced rate as I'll trade only a few contracts per trade.

This board is so interesting to me. I started reading about options a couple months ago so I appreciate everyone's input. My plan is to someday know enough to help otehrs here (and be like Hamp).
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