...less volatility risk (net vega is less)
...less dollar risk
...less theta risk
You have reduced your deltas, so if the stock is strong, it is true you can buy back your short call and let the other go. You need to be comfortable with that risk (possibly a trailing stop).
It is also possible to roll up and sell the higher strike while buying back your short one.
Remember, if you choose to do nothing, you still made a good percentage.
Stop losses:
10% is too lean.
Stops corresponding to a support/resistance level of approx. 30-40% are more realistic. The bid/ask spread is one reason for that. Therefore it is helpful to trade issues that are thick with less slippage for options.
What I mean about not buying back your short call was that the vertical spread would still perform should the stock price rise. The same rules apply: (try to exit about 60 days to expiration). We still want to buy more time than we think we will need to offset some decay risk.
Thickness refers to the stock, but I also look at the bid/ask spread to make sure it is not too wide. Options under $3.00 trade in $0.05 increments; over $3.00 trade in $0.10 increments.
Depending on the stock, look for the option spread to be within $0.20 for options under $3.00, and under $0.30 for options over $3.00. Deeper in-the-money options sometimes trade wider than that, but many of the PIT strategies stay away from them.
Higher option volume and open interest, in general, can narrow the bid/ ask as well.
There is a correlation between how thickly the stock trades and bid/ask.
The market-makers are willing to trade for narrower margin when they can spread off their risk. If the stock is trading thick, then they can sell calls and have no fear of the stock moving up before they get their hedge. Also, if many options are trading (multiple strikes), then they can spread off their risk by legging into different option spreads.
I use a spread as a tool, with a set of risks (greeks), just like a single call or put.
The bull call spread has less dollar risk, decay risk, and volatility (vega) risk. But you are sacrificing Deltas. I don't try to let this position run any further than I would with a single call, just to make up on my deltas.
This is purely a directional spread, and I will exit when the stock gets to my target.
One of the main reasons that I will do this spread is to hedge my volatility risk if implied volatility is approximately over its 1/3 yearly range. This is not set in stone.
You can calculate your net vega for the spread (long - short option) and then analyze how much the position will lose if volatility goes down.
If net vega is .08 and you feel it is possible for implied volatility to go down 7 points, then you could estimate that the position will lose .56. This will be a whole lot less then just buying the call outright.
So compare your expected ROI at your target (expected stock move).
If the stock moves up 6.00, then do the math:
6.00 x delta
6.00 x gamma
= profit of delta + gamma
…subtract your net theta (30 days x .01 = .30)
…anticipated profit = delta + gamma - theta
ROI = anticipated profit [divided by] cost
…then compare what will happen if volatility changes by using net vega.
