Update on Tesoro Call Spread

A few days ago I sold a weekly call spread on $TSRO based on the idea it had run too much and was due to fall back in short order.  I bought a 195 call and sold the 185 for this week.  I netted $2 and if the stock stayed under $185 I would keep the whole spread.

Unfortunately, after I put it on, Tesaro went up a bit more and hovered around the $185 mark.  If it shot up to $195 I would be out $1,000 per option.  Or an $800 loss. 

I prefer to close out early if there is any question but couldn't do it because the option wasn't very liquid.  I decided to wait it out this morning and decided to put in a limit order, buying back the $185 strike for a dollar.  I was on the road and couldn't watch the position closely.

The stock dropped almost immediately this morning and held just under $185 for most of the morning, and around 11 my limit order filled, giving me a good profit of $100 per option less commissions.

As it turned out, the stock closed at $182. If I held all day I would have gotten the entire $2.  OK, a win is a win and l'll take it.  It could have been a loss, so I'm happy.

One thing I re-learned is that it's better to trade options that are more liquid.  There are times you just need to end the trade early.

A short term Option Call Spread on $TSRO

In my last post, I discussed why it's better to use a long time frame when selling option spreads. In this point, I am going to show why I ignored that advice.


I sold a call spread on $TSRO today, selling this week's $185 for $3.47 and buying the $195 for $1.47, a $200 spread per option contract.  As usual when selling the spread, a pretty bad risk/reward ratio, 5 to 1 against.  If the stock goes to $195, I loss the entire amount.  Dumb, maybe.


Well, that's why the call it risk.  Yes, it's a potential loss, but a defined one, pretty much.  Is $TSRO going to $195?  It already jumped $20 today to $182 (it was $183 when I put the trade on.) 


The positive is that it doesn't have much time to go up.  The $20 jump today can be traced to a takeover rumor.  We will see if it has legs.  My play is that it doesn't and drops, or at least holds steady through Friday, two days away.  If I get a drop tomorrow, I'll close it early.


Probably more to discuss on this, but I want to get this posted, and chances are no one will read it anyone.