Options Theory: Hedging Bull Call Spreads
April 7, 2022
Today’s video walks through my preferred stop loss and hedging methods for bull call spreads.
Notes: Bull Call Spread Management
It is an Aggressive/directional trade
Trade Management
- Risk is what you paid, you don’t need a stop loss.
- Exit if stock breaks a key support zone.
- Hedge/Adjust the trade to lose less or increase my chance or recouping losses?
- You could add an OTM bear call spread when the stock breaks support as a short-term bearish hedge.
- Adding 2nd bull call at lower price.
Example
- Stock $100
- Buy May 100/105 bull call spread for $2.
- Stock breaks $98 support zone.
- Hedge: Sell May 105/110 bear call spread for $1 credit. Turn the trade into a call fly (100/105/110 call fly)
- Hedge: Sell May 110/115 bear call spread for 50 cents credit. Turn the trade into a call condor (100/105/110/115)
- Advantage of adding bear call is it reduces the cost/risk of the trade.
- Would I do anything more aggressive than add a bear call? Not usually.
- Enter a 2nd bull call spread at a lower price (scaling in).
- Buy a 2nd May 100/105 bull call spread for $1. Average cost drops from $2 to $1.50.
- Buy a bear put spread/long put
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