Monday, March 15, 2010

OEX March Position Adjustments

***Disclaimer***
Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (the "ODD"). Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606. Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes. In order to simplify the computations, commissions, fees, and margin interest and taxes have not bee in included in the examples used in this presentation. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions. Investors should consult their tax advisor about any potential tax consequences. No statement within this presentation should be construed as a recommendation to buy or sell a security or to provide investment advice.


The following adjustments were made to the March positions on the OEX.

Close 1:2:1 500/485/450 Put BWB
Close 1:3:2 500/485/460 Put BWB

Open 1:3:2 510/505/490 Put BWB
(net credit: $0.40)


Adjustments to the 1:5:4 505/515/530 Call BWB

9/3/2010

Buy back 1 x 515/530 Short Call Spread for 8.70 debit
This resulted in the position becoming 1:4:3 505/515/530 Call BWB

11/3/2010

Buy back 1 x 515/530 Short Call Spread for 8.00 debit
This resulted in the position becoming 1:3:2 5
05/515/530 Call BWB

The initial $11.30 credit received for the 1:5:4 Call BWB helped to partially offset the two debits for buying back the 2 short call spreads. The main goal for buying back the short call spreads was to reduce the risk exposure of the position.

Open 3:9:6 520/525/535 Call BWB
(net credit $2.80)

This moved the upper break even from the initial 520 to 527 to give the position more room.

The position risk graph has been changed to "3 camel humps" (dream aptly named it).




















There is now 4 more days to expiration. The current position is now at an acceptable risk/reward scenario. Again we play the waiting game.



Big lessons learnt: Follow the rules - they are there for a reason, don't be greedy, risk first reward later.


Happy trading - randomjaywalking





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