Saturday, April 10, 2010

April Adjustments using Convoluted Spreads

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.

With 1 week to go till April expiration, the following position adjustment trades were executed last week. The purpose of these position adjustments is to help partially fund the roll-out of the 6 short 525/535 call spreads to May.

Adjustment Trade 1: 05/04/2010

6 contracts
530/520 BULL PUT SPREAD (short put spread)
Credit $1.00

After putting this trade on I realized that the strikes were a little too aggressive based on the expected move calculation at that time.

Adjustment Trade 2: 06/04/2010

6 Contracts
530/525 BEAR PUT SPREAD (long put spread)
Debit $0.70

After this adjustment, the position became 6 contracts of the 525/520 BULL PUT SPREAD (short put spread)

Adjustment Trade 3: 06/04/2010

6 Contracts
525/520 BULL PUT SPREAD (short put spread)
Credit $0.30

I added more contracts to the position and now became 12 contracts 525/520 BULL PUT SPREAD (short put spread)

What the position essentially morphed to was an IRON BUTTERFLY

Put portion: 520/525
Call portion: 525/535

In order to bring in more credits I also executed an iron condor using the OEX Weeklies. The strikes chosen were based on the expected move calculation for the weekly expiration timeframe.

Adjustment Trade 4: 07/04/2010

1 Contract WEEKLIES
535/530 BULL PUT SPREAD (short put spread)
Credit $0.40

Adjustment Trade 5: 07/04/2010

1 Contract WEEKLIES
545/550 BEAR CALL SPREAD (short call spread)
Credit $0.50

Now the OEX closed at 545.46 on Friday expiration of the Weekly Options, so my short 545 Call was 46 cents ITM. I was watching it all the way to the market close (4AM!) hoping that it would tick down and expire OTM...sigh... Since OEX options are cash settled, there will be $0.46 that I have to pay back from the $0.50 cents credit that I took in for the BEAR CALL SPREAD. However, the BULL PUT SPREAD expired worthless and I was able to keep the entire credit.

More to come next week as expiration for the monthly options approaches and the roll-out to May for OEX positions will be executed

-- randomjaywalking

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