My grandparents surmised that SPY would drop to 200 because of COVID-19, and bought on Mar 1 2020 2 (they've sold the rest) SPY Put Options at $230 strike expiring on:

  1. May 15 2020.

  2. June 19 2020.

    Now they're uncertain if SPY will drop to 230 by those dates.

  3. Should they straddle by now buying call options?

  4. If yes, what strike price? The same: $230?

  5. Should they buy calls with the same expiry dates as the above? If not, what dates?

  • How long have they held these options? – Hart CO May 8 '20 at 23:52
  • @HartCO Since Mar 1 2020. – user10763 May 9 '20 at 3:45

Your question is essentially saying that your grandparents thought that the market would drop a lot and since it didn't, now you/they want to know if you should buy calls because it might keep going up. If we knew the answer to that, we'd all be on our yachts, sailing around the Greek Area 51 islands. But just so you don't go away empty handed...

Consider the May 15 put that is expiring next week. With the SPY at $292+, why would you buy a May 15 $230 call for $63 one week before it expires (May 15th)? Ignoring the initial cost of the May 15th put that you already own, the SPY would have to drop below $167 to be profitable at expiration. That's a long way down from here. If it actually did drop first thing Monday morning, you'd start making money a bit under $180. Possible but improbable. Given that you've been wrong once, $63 is a lot of money to risk on a one week bullish call bet and if you're wrong a second time (the SPY drops next week), it's going to hurt. The same logic applies to doing this for June because since the Jun $230 call is so deep ITM, it won't cost much more than the May 15th $230 call costs.

Theta isn't your friend so anything expiring in the first month or so is for short term trades. You can buy one of those expirations but you're going to need timeliness and direction on your side to win.

At this point, you should consider that these two long puts are lost money and they are now just wishful thinking lottery tickets.

If you really have to place the bet, buy a call closer to ATM expiring further out. You can pretend for a week that it's a strangle (the May 15 put) or for 6 weeks (the Jun 19 put) but because the puts are near worthless, in all practicality, it's a long call bet.

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