Answer:   You could if you wish, but I don’t recommend it.  In order to buy back the short leg it will be really expensive.  And, I’m not convinced that the market will climb any more.  On the other hand, if I thought the market was going to continue to rally for the next week, this would be a good strategy.  Let’s look at the numbers as of March 11, 2010:

 To close out the RUT Mar 680/690 bear call spread it would cost a debit of $2.55

To BTC the 680 leg it would cost a debit of $3.85

To STC the 690 leg we would collect $1.30 credit

3.85-1.30=$2.55

 You can see that if we just hold onto the long 690 call, it will cost us $1.30 and the RUT would need to continue to rally in order for this long 690 call to pay off.

Buy to open RUT May 560 call 

Sell to open RUT May 550 call  -   For a credit of 40 to 65 cents.

Then it goes on to say:   If the market continues to climb, and if this spread is now filling for 68 cents, for example, we would suspend fills on this spread, per the directions in the advisory above, and we would ”click-up” to the RUT May 560/570 bear call spread and repeat the process of “collecting” premium on the days where it’s filling for at least 40 cents, but no more than 65 cents.   But are you not then overlapping this new spread with the previous one and thus opening up a 20 point spread of May 550 / May 570 ? The May 560s will cancel each other out.  Would this then require trading in 2 separate accounts ?

Response:    Yes, when trading 10 point wide spreads, like what we do with the RUT, we need two accounts.  That is, we need two accounts if we want to be nimble and click-up and click-down our strike prices as the underlying index moves, which ultimately reduces our risk.  Some credit spread traders/newsletters don’t click-up/down during the month, which is rather unfortunate because this increases risk, and you wouldn’t need two accounts.  Per how we do it at MCTO, we do recommend for our subscribers to have two accounts. 

One way of eliminating the need for two accounts is to mix RUT credit spreads with IWM credit spreads.   The IWM is an ETF that tracks at 1/10^thof the RUT.   For example, if we recommend the RUT 570/580 bear call spread (which is a 10 point wide spread…i.e. 10 points between the buy and sell legs), the IWM 57/59 bear call spread (which is a 2 point wide spread) has almost the same risk/reward profile.  So for example, let’s say we first open the RUT 570/580 bear call spread.  One week later the RUT rallies and we decide that we need to click-up to move further away from the underlying index.  Because we want to do our best to maintain 10 point wide spreads in our account, we shouldn’t put the RUT 580/590 into the same account that already has the RUT 570/580 since this would create a RUT 570/590 bear call spread, which is 20 points wide.  So an option is to put the IWM 58/60 bear call spread into the account.  Then if the RUT continues to rally and we decide to click-up again, we go back to the RUT and put the RUT 590/600 in the account…..etc.  We also call this “layering” our spreads.  The disadvantage, however, of opening 2 point wide spreads is that higher commissions eat into our returns, so it’s best to use low cost options brokers, like eOption or TradeKing.