Yesterday I took us through a roll scenario in Starbucks where a winning call spread was rolled out to become a calendar, extending the bullish view while booking profits and reducing deltas after the initial move higher. Today I wanted to check in on a similar roll in Cisco (CSCO). First, here was the initial trade idea, from November 15th:
Bullish/ Stock Alternative
CSCO (34.18) Buy the Dec 34/38 call spread for .93
- Buy 1 Dec 34 call for 1.02
- Sell 1 Dec 38 call at .09
A week later, with the stock having broken out and 36.73, this trade was worth 2.70. Here’s what we said at the time:
With the stock now 36.73 this call spread is worth about 2.70 versus the initial .93 at risk. It’s nearly 100 deltas at this point, meaning any move higher or lower and it will essentially just mimic gains and losses in the stock. For those happy with the profits from the event it can simply be closed. For those wanting to take most of the profits but leave something on the table into 2018 a roll of the 34 calls up and out can book profits and allow for further profits. The Feb 38 calls are about .78 and closing the Dec 34 calls at 2.73 means booking a little more than a dollar in current profits and then being left with a Dec/Feb 38 call calendar for a credit.
With the stock now 37.50, the Dec/Feb 38 call calendar is worth about 0.83. It’s also setting up really nicely. The best roll here would be if the stock hangs around this area and the Dec calls decay a little more, setting up a roll out and up to the February 40’s. Right now that roll would book an additional .20 in profits and leave on a 38/40 call spread for a credit that could be worth up to an additional 2.00 in profits, risking only part of the existing profits. The best timing for this roll is probably late this week or early next week, ideally with the stock at or near 38. If the stock begins to fall before the roll it may make sense to simply close the entire trade for a profit and look to re-establish later.