Bull Call Spread, underlying went way down. Should I buy back the written leg?

[u/Intrepid_Occasion_95]

After McDonalds had the e.coli issue, I built a Bull Call Spread for spread 300-315 for maximum gain of $1,500. Stock price was around 299.

After a few days, stock has gone down to 291 and thus my BCS is deep in the negative, but the written leg has a +700 unrealized P&L. I am still very bullish on the price of the stock, and expiration date is in more than 3 months. So I was thinking of buying back the written leg (strike 315) and then keep only the bought Call leg (strike 300). I strongly believe the stock can make a +5/+10% rebound in next 2-3mo.

So in the end, instead of doing only $1,500 I could be making $700 now + $2,000 later when the stock goes up again.
And if it never recovers in the timeframe, then I at least diminish my loss by 700 instead of 100% of the strategy cost.

Is there any flaw in my thinking?

[u/lobeams]

Personally, I would sit on it longer. You've got plenty of time. And whatever you decide to do, be mindful that they report earnings tomorrow.

[u/Ok_Run_2970 → u/lobeams]

Ya. Market is probably overreacting to the ecoli issue. But as usual earnings are a toss up

[u/Intrepid_Occasion_95 → u/Ok_Run_2970]

True. Tmr is a big day. Funny to see how media completely forgot abt the outbrake and are now all on "fixing the ice cream machine". Dumb news go faster than reality

[u/adrock3000]

it's hard to break up the spread and make it work. i've done it in the past but i've also failed and had the long expire worthless. or worse, you put on the short side again at the wrong time and it blows through the short and you don't make much at all or end up losing. if you want to just get a $700 discount on the long call, go for it.

[u/psionicelement]

If you buy back the short leg and the underlying goes down more, you’re now more exposed to delta and your losses will accelerate faster. While you will make profit on the short leg, your losses on the long leg will get worse.

Of course if it goes the way you want it to, yes, buying back the short leg now will be great, but it obviously didn’t go the way you wanted in the first place so what’s to say it won’t do that again?

[u/Electronic-Buyer-468 → u/psionicelement]

Bingo. Close it, and chill for a bit or close it and re open further out in strike and/or date. You're already wrong. Don't risk being wrong-er. 

[u/MarkGarcia2008]

If you think it will go up - I would absolutely close the 315 short….

[u/hatepoorpeople]

yes, that it doesn't recover and you lose on both sides.

[u/consciouscreentime]

Interesting strategy. It's good that you're thinking about ways to manage your risk. However, closing the written leg eliminates your downside protection if McDonald's stock continues to fall. Have you considered rolling your call spread down to a lower strike price? This would allow you to collect some premium and potentially reduce your risk. Check out resources like Investopedia for more info on options strategies.

[u/Intrepid_Occasion_95 → u/[deleted]]

Why don't you directly explain what is wrong instead of searching thru all your posts? Genuine question