JH06 said:
Advice Needed
I purchased 1 contract of AMD Oct 16 $50 calls on July 8th for $900. With their recent run it is now at $3600.
Should I close and take my profits? Keep Holding? Or is there an option play to collect some premiums now and hedge?
My opinion, in this situation, is that you should make the decision based on what you would do if you were holding shares instead of options. The extrinsic value is $.25-.50 looking at the bid ask spread on the option. At the time of looking the stock was $84.97 and option was $35.25/$35.50 bid/ask.
Normally on an option two months out you would have a little more time value baked in. But in this situation you only have $.50 to lose on time value. So if you think the stock will go to $90-95 in that time frame, hold the options. If you think it will pull back to $75 by that date, sell them.
Now, if the stock was at $85 and the option was at $45 today, you would have $10 of extrinsic value and you would have to weigh in the time decay more so because even if the stock was $95 on 10/16, you gained nothing from holding it instead of selling it today because the value on 10/16 would still be $45.
In my opinion, you're better off setting a stop loss and seeing if it runs a little more. Somebody can correct me if my thinking is wrong.