Exiting Bear Call Spreads Early

Most people when they sell bear call spreads intend to hold onto them until they expire. If they do and they profit you can realize your maximum gain. You also do not have to pay commissions for exiting your spread if they just expire. But in certain conditions it is a good idea to exit a bear call spread early. When you sell an out of the money spread the premium is constantly melting away and as long as the stock is not making any upward movements. If a stock falls fast then chances are the spread you sold might not be worth anything. In this case it is a wise decision to exit the position early for a profit and not hold out to make the extra few cents. For instance say you sell a $50/$55 bear call spread 1 month out on a stock and you make $1.10. Then within a week the stock falls significantly and your spread is now only worth $.05. Well in this case isn’t it better to exit the position all together. Look at the advantages. 1. You make $1.05 in 1 week instead of making $1.10 in 1 month. It is a smaller profit but it is also made in a shorter time frame. 2. You already made the majority of your profit, so you might as well not risk the stock turning around and turning your profit into a loss. 3. It frees up your capital so you can look for new trades to enter. Your capital will probably be put to better use in the next trade rather than trying to rake up the last $.05 in this trade. As humans our greed makes us want to hold the position until expiration, but often times it can be a much wiser decision to just exit out once we have made the majority of the profit. To Learn More About the Bear Call Spread Visit http://www.stocks-simplified.com/Bear_Call_Spread_Stocks.html For more information about option selling visit http://www.stocks-simplified..com/option_selling.html