Should I get rid of my long term options?

Question

i have some call options that don't expire till 2010

but right now i am already down over 50% for all my call options.

i know i still have over a year until they expire.. but i lost confidence in our economy.. even if stock rebound by that time the time decay is eating my options alive

would it be smart to get rid of my call options after july earning season?

Answer 1

<<<should I get rid of my long term options?>>>

No one can tell you if the price is going to rise again or keep going down. Hence no one can tell you if it is in you best financial interest to close the position now.

<<<i have some call options that don't expire till 2010

but right now i am already down over 50% for all my call options.>>>

If you are a longer term investor, instead of a short term trader, the price you paid, or the amount you are up or down, does not matter. What is important is the current price compared with what you believe the future price will be.

<<<i know i still have over a year until they expire.. but i lost confidence in our economy.. even if stock rebound by that time the time decay is eating my options alive>>>

Time decay that far from expiration is minimal. Implied volaitlity and the price of the underlying are far more important than time decay for options over a year for expiration.

<<<would it be smart to get rid of my call options after july earning season?>>>

I have no idea why you think the "July earning season" is important for your position.

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From what you have posted, the best advice I can give is to look at the current price and ask yourself "If I did not already own this, would I want to buy it at the current price?" If the answer to that question is "No" than I would recommend you sell and look for something you would like to buy at its current price.

Since you are dealing with an option, part of my decision making process would be to determine if I believe the implied volatility (IV) for the option is too high or too low. If I thought IV was too high I would be much more likely to want to sell the position.

If you do not compare current IV to your projection of future volatility when trading, I think you are making a mistake trading options instead of the underlying stock. This is particularly true for LEAPS, where IV has a much greater influence on the option premium than with short-term options.

Answer 2

Options are extremely volatile, so a big loss or gain has to be put in perspective. A small stock price movement can make a big option movement. If the expiration is in 2010, then you are in a nice position, because you can wait out the market downturn. The prices of the underlying stocks could be a in a completely different price range by 2010.

I would keep the options if you still think the companies are good companies with growth potential. The only reason to sell is if you don't believe in the company's prospects anymore or if you think a recession or depression is coming. But the market action of the last two days, and the recent earnings reports, suggest that a recession is by no means inevitable. The federal interest rate cuts are working, but it takes time.

Answer 3

First - you NEVER carry a long position in any thing if it drops more than 10% -  but I'm almost sure we've had this discussion before.

Not sure what you're long?? and how many

If the underlyings are decent companies, maybe you could buy short term and pick up a few bucks

If you could use the tax loss, ride them out until December and then decide to blow them out and use the loss