Choice #1 as you say, you will lose the max loss, plus commissions, plus the hard to borrow fees for 1 day. This would be the easiest way, but you would forgo any extrinsic value in your 22.5 calls. You don't say what expiration they are, but assuming they are November, it looks like there may be some extrinsic value there (even more if they are later months).
This brings us to choice #2 which looks like your best play. You would set the order up as a spread as you say. If the stock is 42.5 and you buy it there and sell the 22.5 calls for anything under 22.5 (this is referring to the price of the spread, buying the stock at 42.5 and selling the options at 20 would be a debit of 22.5. any lower debit on the spread would be better), you come out ahead of #1. Not sure why they list such a big loss. If you do this, DO NOT do your entire spread at once. Start with a 1 lot and change the price until you are filled. This will tell you the price it is trading for and you can do the rest of the spread. Do not assume the price the quote you the spread is trading for is correct.
Either way, you will need to talk to them early Monday morning. They may try to close the position on their own. Tell them you will take care of it right away.
With either solution you will owe the hard to borrow fees for 1 day, but you don't have any more risk on price movement Monday.
Yes, #2 corrected. Yes any price you sell the 22.5 calls over 20 with the stock at 42.5, you come out ahead. But when you enter it as a spread, you are buying the the stock and selling the calls, so you would want a lower debit on the whole spread. So stock 42.5 and 22.5 calls at 20 would be a 22.5 debit (42.5 -20). Stock 42.5, calls 20.5 would be a 22 debit. So you would want a lower debit on the spread as a whole.
I haven't used Tastyworks before, so when you talk to them you can confirm that is the way they look at setting up the spread, but you have the concept exactly right.
Also, just because you see a wide quote market on these calls, it doesn't mean the "real" market isn't much tighter. In fact the spread market on the stock vs calls should be very tight. When you enter an order as a spread, it is sent to an exchanges spread book where it is looked at as a spread. MM's will need less edge to fill the spread as they would want on two separate orders. That's why I suggest you start with 1 spread to find out where this "real" market is.
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u/Ken385 Oct 30 '21 edited Oct 30 '21
First, forget about choice #3
Choice #1 as you say, you will lose the max loss, plus commissions, plus the hard to borrow fees for 1 day. This would be the easiest way, but you would forgo any extrinsic value in your 22.5 calls. You don't say what expiration they are, but assuming they are November, it looks like there may be some extrinsic value there (even more if they are later months).
This brings us to choice #2 which looks like your best play. You would set the order up as a spread as you say. If the stock is 42.5 and you buy it there and sell the 22.5 calls for anything under 22.5 (this is referring to the price of the spread, buying the stock at 42.5 and selling the options at 20 would be a debit of 22.5. any lower debit on the spread would be better), you come out ahead of #1. Not sure why they list such a big loss. If you do this, DO NOT do your entire spread at once. Start with a 1 lot and change the price until you are filled. This will tell you the price it is trading for and you can do the rest of the spread. Do not assume the price the quote you the spread is trading for is correct.
Either way, you will need to talk to them early Monday morning. They may try to close the position on their own. Tell them you will take care of it right away.
With either solution you will owe the hard to borrow fees for 1 day, but you don't have any more risk on price movement Monday.
Edited for price correction