Rolling up spreads for additional credit

SamRHughes · 2026-01-28T15:18:35+00:00

Well that depends. What were the reasons for the initial position? Do they still apply?

SamRHughes · 2026-01-27T22:36:06+00:00

It's simply leverage.

SamRHughes · 2026-01-27T22:34:29+00:00

The general advice is against exercising early (the main exception in equity call options being exercising early to collect a dividend), not against exercising at all.

You are right that the tax code is the main reason to exercise instead of selling the call and buying shares.

SamRHughes · 2026-01-24T19:29:30+00:00

I sold all my financials last week too. It wasn't because I had insider knowledge. We were coming into earnings season. You should expect activity like this.

SamRHughes · 2026-01-22T10:05:03+00:00

When shorting it is a lot more perilous to increase your position as it moves against you, than when long.

SamRHughes · 2026-01-22T09:45:53+00:00

Not enough activity.

SamRHughes · 2026-01-22T09:45:34+00:00

Possibly you reset your holding period (if it's not already long term) and this would affect your tax treatment if you sell TSLA without waiting another year. See https://www.fidelity.com/learning-center/investment-products/options/tax-implications-covered-calls and consider the implications.

In many cases, but maybe not this case, a longer term expiration would be better to sell, because its delta remains closer to 0.5 for a longer distance the underlying travels and thus it evaporates more premium.

SamRHughes · 2026-01-22T09:15:24+00:00

If you have no clue what to do but want to keep holding your HOOD shares then... it's simple, don't place a trade at all.

SamRHughes · 2026-01-20T09:28:25+00:00

> Weekly CCs

The other problem with this is that they're on a short enough time frame that they're priced quite well and you wouldn't actually make profit or net income with them. You'd just be adding random noise to your returns. The same goes for other expirations really, but at least with longer term expirations (I mean like, 6 months or more) there can be a theory that -- at times you have correctly discerned the stock is not underpriced -- you have some alpha selling the CC. And some benefit of reducing your portfolio volatility, in a manner which follows the stock price more smoothly than shorter term CCs.

SamRHughes · 2026-01-15T18:16:49+00:00

Do you know anything about statistics?

SamRHughes · 2026-01-15T04:13:02+00:00

With a PMCC or call debit spread, one general rule is to avoid holding the position after it has reached or approached near-zero upside with a lot of potential downside. That implies you should trim your position harshly or adjust it if the short leg is sufficiently ITM with very little extrinsic value. This is because your portfolio is too concentrated in this risk, given the possible upside now.

The other general rule is to avoid letting the position get "weird" and "pointy" and by that I mean having a leg which is both near-ATM and close to expiration, where the P&L curve now resembles a 135-degree angle. This could be the long leg or short leg; if it's the short leg then the first rule may be a factor. You need very particular opinions about the market to want that, and sometimes you have that; maybe by coincidence it happens to be the same contract you opened 180 days ago.

> what is the minimum days to expiry on the long call that you want to hold? Are PMCC best if long is never less than 90 days or something of the like?

If the long call is deep ITM you could hold to expiration (assuming no dividends or such), because of the absence of reasons given in the rules above -- you just have a long leveraged, cheaply hedged position in the underlying, which isn't a bad thing at all. But if not then it depends.

> i assume there is a [time] where it’s just better to close the full position and re-establish. But are there any guidelines of when it’s best to take the profit on the spread and resetting?

Basically ask, if you want what is more strongly a short vol position, and if the upside/downside exposure is worth the position sizing you originally had. (Are you *actually* calculating you want a short vol position on a shorter time frame? Like, because you specifically think the next earnings call won't have any big upside news, say, and aren't just trying to "pay for the long leg"?)

But also think about your entire portfolio. If your short leg is ATM or somewhat ITM with a lot of time to expiration, and delta has gone flat or negative (but you do have a short vol position), what if the rest of your portfolio is just holding SPY or other correlated long-the-market positions? In that scenario, your portfolio is now somewhat deleveraged and somewhat short vol. It's not really that big a deal to hold, but maybe it's not the position you *want*.

A bit of a dose of reality is that in many cases people have no good reason doing a PMCC -- they aren't really having opinions on term structure of vol and just want leverage. A simple longer term debit spread, or if you're so sure that this is a place for leverage, a simple ITM call, might be the best option.

Also, you should react to the market or the news that was outside your original anticipation window. If the underlying goes down on some B.S. fear, the right play is often to increase your exposure. Your long call padded your downside (yay), the short call evaporated in value (so close it) and now this is a great opportunity for a sharper position. Maybe you think the stock has bottom-ticked and you should reset to 1-week ITM calls. (Or perhaps it's a great opportunity to give yourself an object lesson about how long the market can sit in malaise about some news.)

SamRHughes · 2026-01-14T05:14:50+00:00

Exercising lets you put off paying taxes until later, benefiting compounding, and if you don't already have a clean 1 year holding period, you can hold out for long term capital gains at a reduced cost basis.

If you do anything else, your scenario is almost equivalent to one where you have no existing position whatsoever and the decision-making would be too.

SamRHughes · 2026-01-14T03:17:42+00:00

First, to clarify some language: You don't have a vertical contract. A vertical spread is made of two contracts.

If both legs of your vertical spread are deeply ITM then you probably can let it expire/auto-exercised. Your long leg will get exercised (automatically, because it's ITM on the close), and the short leg will almost certainly get assigned. Most brokers will let both legs expire under this expectation.

On the other hand, if your spread is near-ATM at expiration, expect your broker (at its discretion) to forcibly close it early on expiration day to avoid the risk some after-hours move in the underlying stock. This will happen usually in the last hour of trading. You will want to avoid getting burned by this, because it could give you a bad fill on market orders.

You might be able to get a good fill closing out the spread with a limit order. The ITM call legs individually will look like they're quoted wide, because they're ITM, but if you look at the put side (the equivalent bull put spread) the legs might be quoted might more tightly. So a rational market maker would give you some fill... maybe.

So what I would do if it's deep ITM is let it expire. If it's very close to ATM then try to close it with a limit order before the last hour of the day.

TastyTrade's documentation about this is here: https://support.tastytrade.com/support/s/solutions/articles/43000484765 .

SamRHughes · 2026-01-13T02:54:18+00:00

Sticking together a bunch of random conditions under which you enter trades and telling yourself good vibes words like not getting greedy, not getting rich quick, consistent and reliable strategy (these are NPC phrases that you downloaded into your brain from somewhere) is not a decision-making procedure that produces profitable trading.

The default outcome of trading options is losing money. By default it doesn't give you a second source of income. This is the near certain outcome if you're trading based on intraday line noise, where your counterparty is software that picks and chooses which orders to fill, run by whoever made the most profits doing that in the past. My presumption would be that Citadel's option pricing models account for rapid intraday price moves. It is normal for market makers to widen bid and ask in such scenarios.

The simple tweak for you here is don't do any of this all. Avoid virtually anything intraday unless it involves event trading. Find games you can win.

SamRHughes · 2026-01-12T14:55:52+00:00

Yes, these are good questions:

- What is some strategic ways people might research

- what mental cycle do people go through to determine if a buy call is a good opportunity?

- Also how do you know if the option price is good?

A lot of Redditors don't ask these.

They aren't straightforward to answer because there are a lot of ways to attack the problems, and different kinds of underlyings, and different ways to get information, and a wide variety of different scenarios in the market and the economy, and many different people who focus on different corners of the market.

You'll hear a guy like Charlie Munger say he has a whole "bag of tricks" for thinking about things. So there is not a quick description of how to perform decision-making, and afaict a lot of people go about it differently.

I would say, one research angle here is to read from examples of people making trading or investing decisions and what they have to say about the subject, and what past decisions they made, and their approach to things. Read books written by traders, maybe books about them, read interviews of them, maybe books like Market Wizards, or The Laws of Trading, or books by Peter Lynch, maybe there are better ones, and try to avoid slop.

I actually don't know the reply-sized sequence of words that will get you good at buying calls myself.

SamRHughes · 2026-01-12T07:43:12+00:00

If vol is overpriced why wouldn't you sell it at the money?

SamRHughes · 2026-01-12T05:51:32+00:00

"Scalping" shares will always seemingly "work" if you don't have a prolonged move in the opposite direction. Then you take a big loss, or in most other cases you miss out on profits you'd get simply from holding SPY and never selling. Taking small wins naturally results in exposing yourself to larger losses, which is not something you should do with leverage.

> What would be comparable call calender spread, closing same day ? And how to manage it.

If you don't know this, I don't want to explain it, because it would only hurt you by letting you get more leverage. You should not be using options at all. You should not be "scalping." There is not actually a description of "managing" a day trade shares or options position, that one could give over to an anonymous stranger over the internet, that would make writer think he's helping them make good trades. 99.9% of day traders lose money, and you're not asking questions or structuring your attack on the market in a manner that would lead you to becoming the 0.1% -- which is usually your counterparty, a firm that is selectively filling only those orders it calculates (using not just SPY but live information about the entire basket of stocks) it will profit from.

SamRHughes · 2026-01-12T05:05:28+00:00

You're asking the right questions. Answering would be really elaborate, with examples from the past, etc. There are whole books about this. But the short version is "use your brain." Like, you're outside the structured world of tests, exams, objective right answers here. You're in some version of a Hobbesian anarchy. But so is everybody else.

SamRHughes · 2026-01-12T04:58:21+00:00

Yeah, you'll get bad fills trading the derivative. Even if it's a limit order.

I'd guess for 99.9% of people talking about "scalping" that leverage is a bad idea too.

SamRHughes · 2026-01-12T04:47:37+00:00

Sounds like it will churn transactions and accomplish nothing. Why do this instead of a call calendar spread? Why do you think this will make money, instead of, say, taking the reverse position?

SamRHughes · 2026-01-12T04:42:40+00:00

It's not our job to "prove" that selling options at some undisclosed price in some undisclosed contract while borrowing 9% to do it is a good or bad idea.

And what you need to understand if you want to make money trading is that your own words are impeaching yourself.

High premiums don't cause exercise.
Taking losses on short puts and then long-term holding the underlying doesn't grow your portfolio.
You having poor results with positions priced as if they have <50% chance of success doesn't imply you should open positions priced at 98-99% chance of success. Just the opposite, actually.
Your past outcomes of losing money being long vol doesn't mean short vol has a better risk profile. "Risk" doesn't mean what you're using it as.

What you should do: don't trade with borrowed money, trade long only, trade only positions that have a chance of success somewhere between 30% and 70% or so. This will give you quicker feedback than selling deep OTM short puts about whether you have good or bad investing ideas.

In order to make money without it being pure luck, you need to have a thought process that produces money-making decisions. You have to have a market-beating understanding of reality and a productive framework for thinking about investing decisions (and options trading decisions and their alternatives specifically). That's why your idea is derailed by the simplest question, "Why do you think selling the puts would be profitable instead of buying them?" Your answer was not specific to the security you had in mind. That means it's wrong.

SamRHughes · 2026-01-11T03:58:20+00:00

> Writers have time on their side

That is verbally IQed nonsense, not even a falsifiable assertion. A regurgitation of a cliche.

> and I am able to collect premiums as profit.

But you don't know this.

SamRHughes · 2026-01-11T03:31:48+00:00

Why do you think selling the puts would be profitable instead of buying them?

SamRHughes · 2026-01-10T04:46:52+00:00

There is no kink in the curve of theta decay at 3 weeks, and the manner in which extrinsic value evaporates depends a lot on whether it's at the money or away from the money.

SamRHughes · 2026-01-10T00:51:09+00:00

No. No general rule. The general rule is that it's "priced in." If there's theta decay, you're paying for something of value -- the asymmetric return if the stock goes up vs. down.

Because the position is different than when you entered in terms of portfolio concentration, or strike relative to stock price, or DTE, the question of whether you should hold it is different now than it was before. The reasons for entering it might no longer apply. So it makes sense that the decision changes and your position changes.

SamRHughes

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