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Dear RTs and option-traders out there:
I need some advice please, regarding my option spread on AOL--
Facts --
1. I am holding deep in the money Dec 50 calls with current bid at 39 1/8 and
ask at 39 5/8. Today's volume for the option at this strike price was 114, and
open interest 759.
2. I am short the same number of contracts of deep in the money Dec 55 calls
with current bid at 34 1/4 and ask at 34 3/4 today. Today's volume for the
option at this strike price was 113 and open interest 767.
3. Just for reference purposes, the underlying stock (AOL, which I do not own)
closed at 91 3/8 today.
I wonder if these below are my only action choices (?) Buying the short call
option back is not feasible.
(A) If I liquidate the two option positions now simutaneously, I would only
collect 4 3/8 (= 39 1/8 - 34 3/4) less commissions on option transactions.
(B) If I dont do anything and let the two options get exercised at expiration
date, I would get a credit of 5 (=55 - 50) less commissions.
Since there is so little difference in delta for these two call options
(because they are both so deep in the money and have the same expiration
date), most of the difference is due to the spread between bid/ask.
This is my thinking-- It is probably unlikely that the call option that I am
short will be exercised before expiration because it is so deep in the money.
Thus it is better to just wait for the automatic assignment.
Even if the short side does an early assignment on me, and my broker will be
forced to do an early assignment on my long side to cover that, there is no
bid/ask spread loss for me. Is there?
Are there any holes in my above reasoning and thinking?
Any comment are very much appreciated.
Thank you very much.
Sincerely,
Bill W
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