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Posts Tagged With 'credit spread'

Posted by Martin November 28, 2014

Expiration Friday mostly flat

Expiration Friday mostly flat

The week looked good until last Thursday end of the trading. Markets were slightly up which was good for our options positions set to end this Friday.

I had an Iron Condor against SPX set to expire today. It was 2105/2110 calls and 2030/2035 puts. Since the market ended at $2067.56, both legs of the Condor ended out of the money and expired worthless for a full profit.

When I was opening the trade I collected $40 premium per contract. This represented a gain of 8.70% in a week.

My second trade was a bull call spread or debit spread against SPX. I had 2065/2070 call spread and my risk was $290 to make $210. Not bad if the trade could end profitable.

On Thursday the stock market was well above 2070 making this trade a great deal. Even today morning the stock market went up above 2075 a share. But then it reversed and continue falling heavily pushed down by energy stocks.

If the market ended above 2070, both calls would end up in the money and could be exercised against each other for a full $210 (76.36%) profit. Unfortunately, it didn’t happen. The market fell hard and I had to decide what to do with this trade. I had an option to either close the trade for a partial profit, let it expire and offset both calls against each other for partial profit, or roll it.

Since the market continued falling hard and my lower long call option (2065 strike) became also endangered I decided to roll the trade. If I closed it, the profit could be very little or I could be closing with a loss. Rolling the trade increased my risk, but also increased a chance that this trade ends up in the money and I will profit.

So I rolled my debit spread 2065/2070 further away in time (into December 12, 2014 expiration) and hope the market will continue higher by then.

But what if the market won’t continue higher in the next two weeks?

Then I have a plan to close my short call position (2070 strike) and sell 2060 strike converting my debit call spread into a credit call spread. That will turn my bullish trade into a bearish trade and hopefully also expire worthless. We will see next week.

Happy Thanksgiving Trading Day!

Posted by Martin January 09, 2012

New trade – FCX

Freeport McMoRan (FCX)

Bear Call spread

BTO 1 FCX Feb18 2012 42.00 Call
STO 1 FCX Feb18 2012 39.00 Call

Price: limit credit $1.20

Max risk: $180
Max gain: $120 if price stays below $39 at expiration

Update:
01/10/2012 – filled @ $1.2 ($120 credit)