Before reading this article, it is important to understand how the BULL CALL Spread or Debit CALL Spread works. This article below will explain in details how this vertical spread options strategy works:
How Does Bull CALL Spread Work?
Background
I was bullish ahead of China’s stock market reopening on 8 Oct as I read about millions of mainlanders (Chinese nationals) rushing to open up trading accounts to trade/ invest in exuberant FOMO style.
On 7 Oct, I opened up 30 positions of BULL CALL Spread on FXI (China large-cap ETF) with strike prices USD38 & USD40, with expiration on 20 Dec 24 (74 days contract). It was a 2x potential trade if FXI can close above USD40 upon expiration.
Trade Details: [7 Oct 24] Bought Bull CALL Spread On FXI (Potential 2x trade if FXI closes above USD40)
However, the trade did not go as planned as the Chinese market flattered (HSI was down more than 9%) after reopening due to the lack of stimulus announcements. FXI’s share price dropped by more than 8% and the contract value of my BULL CALL spread dropped by half.
How I Repair The Trade?
To repair the trade, I rolled the 30 contracts to a later date (from December 24 to Feb 25) with the same strike prices of USD38 and USD40 to allow more time for FXI to reach its intended target of USD40 for my max gain.
How To Construct The Trade?
In order to execute the trade and roll the positions to a lower trade, I need to do the reverse of the BULL CALL Spread, which is essentially doing the BEAR CALL Spread, and open up a new BCS at a later expiration date.
Using the Strategy Builder in IBKR, this is how I construct the trade:
I also paid a debit of USD0.09 per contract in order to execute this trade.
In Summary,
Expiration date: 20 Dec 24 ==> 21 Feb 25
Debit: USD0.09 per contract
New premium paid per contract: USD70.5
Total premium paid (max loss): USD2115
Max Gain: USD 3885
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