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FoolforBCS: After 8 successful BCS that have closed early, I now have a pretty clear loser in Dermtech:

DMTK Dec 17 '21 40/45 Call (38 days to expiration)

I bought this spread back on 6/1 for a $1.70 debit (34%) with DMTK trading at $38.50. With yesterday's blah earnings report, the underlying has too far to go to get into the money. After being down at the open, DMTK has traded up a bit to $27.80. Per pricing as I write this, the mid-point to close offers a $0.25 credit. Should I take whatever I can get now or put in a GTC at the ask ($0.40) or wait for it to get closer to expiration?

I don't see any catalysts coming in the near term. However, it's a volatile stock, so it could easily move 10% in either direction prior to expiration. My limited experience says a GTC order at the ask, but I wanted to ask the community before moving forward. I know we are talking nickels here, but nickels matter when managing a portfolio of vertical spreads.


Don't really have any opinion on your presenting question, if only because it is "only nickels."

But your post leaves me with some questions. I've got one expiring BCS (ATVI, expiring in Jan 2022) and currently several dollars under the long leg's strike, a bit over $7 to get to break even). The relatively few other BCSs that are currently "in the red" have plenty of time to get there, although LMND isn't looking promising even with that cushion of time (Jan 23).

What I'm struck by is your spread compared to the market price on the day you set it up; even then, only a few days over five months ago, it had to increase in value by quite a bit in order to even get to break-even.

Making me wonder: what sort of assessment did you go through in setting that spread up?

I won't claim to do all kinds of analysis of each company, but I always look for candidates that are:
--highly recommended by one or more of the Fool services AND
--currently around 30% below their 52-week high AND
--even then I set the spread with the market price in between the lower and the upper strikes OR
--higher than both, AND
--yielding (if it succeeds) at 125% or more in profit over the spread's life span

In your case, it sounds like you were hoping for a lot to happen in a relatively short time (I always go out as far as possible too; didn't mention that). So you had higher potential reward for higher risk, with the risk being compounded by the shortness of time allowed.

I know you've written about your love affair with BCSs, and I share your enthusiasm. It would appear, though, that we go about that affection in quite different styles. Or was this DMTK spread an outlier even in your portfolio?

mathetes
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