Option Investor

Portfolio Activity - BBH

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Lets Get This Straight!

We received a number of E-mails today regarding position management, many of which were about the recent BBH spread. While most of our long-time (OIN) subscribers understand our approach, the onslaught of new readers has changed the way we are trading the MCM portfolio in the near-term. Some of the adjustment techniques we want to use are simply too complex for readers who have minimal experience with options, and too little capital to apply the strategies correctly. Therefore, we have outlined (in an earlier post) a number of potential alternatives for BBH, based on the technical outlook for the issue, and your personal risk-reward attitude, experience level and available portfolio capital. As of Tuesday's close:

1) You can simply hold the position and hope it expires profitably.

2) You can exit the spread for a loss of approximately $0.60 per contract ($1.10 closing debit - $0.50 initial credit = $0.60 X 5 = $300 loss overall)

3) You can roll up and out to the JUL-$160/JUL-$155 call-credit spread. Since that trade can be made for little additional cost ($0.20 - $0.30), it may be the best "adjustment" alternative for the majority of readers and the model MCM Portfolio.

4) You can transition to a neutral-outlook calendar spread (JUL-$145/APR-$145) for a debit of roughly $5.00 per contract, as outlined in Monday's Blog. Although this technique is not appropriate for many readers, it does offer a unique risk-reward outlook for traders who favor "time-selling" strategies. In addition, we will be following this position (as well as the roll-out trade) for the benefit of our new readers and the educational value it will provide them.

Trade Wisely!

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