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BKX alternatives for adjustment of current spread 7-22-08

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For subscribers who want to close out the BKX position and take the lost. You may do so for around a NET DEBIT of $2.85

IF you BUY TO CLOSE the BVKHM 62.50 AUG CALL 7.00 - 7.70 ( 7.35 DEBIT)
IF you SELL to CLOSE the BVKHN 67.50 AUG CALL 4.00 - 5.00 ( 4.50 CREDIT)

NET DEBIT of $2.85

NET $3.70 if you take the worse of both sides - I suggest you go etween bid and ask on both sides
NET $2.85 if you split the BID and ASK on both sides YOUR CHOICE depending on how bad you want to exit the spread position, it could be a bit higher, don't haggle if you really wnat out. IF the market opens down you can get out for less of course ( Remember that is assuming closing prices today before the opening. They could change with an up or down opening)

REMEMBER: We are going to hold the original position position for now.


However, if subscribers want to adjust the position with an opportunity to potentially minimize the loss here are several alternatives depending on your available margin and if you desire to adjust the position. Remember are adjustments require you to close out the current position and take the initial loss

BUY TO CLOSE the BVKHM 62.50 AUG CALL 7.00 - 7.70 ( 7.35 DEBIT)
SELL to CLOSE the BVKHN 67.50 AUG CALL 4.00 - 5.00 ( 4.50 CREDIT)


Alternative #1: It you believe that the BKX has only a little steam left and is OVERBOUGHT Just roll out the position and establish a call credit spread at higher strikes and DOUBLE the amount of your original contracts - if you put on 10 credit spreads originally, you now put on 20 when you roll up the strike prices( I am demonstrating one scenario, but you may change the strikes depending on how aggressive you are and if you are looking for a pullback and how much premium is available

SCENARIO:
BUY THE BKXHP - BKX AUG 80 CALL
SELL THE BKXHO - BKX AUG 75 CALL
for a NET CREDIT of $0.70

Since you have 20 contracts your NET CREDIT RECEIVED is $1,400

Since we received $400 on the original trade and will have to close out the original trade for a lost of $2,850 or more. That is a $2,450 lost. Now add the $1,400 you receive from putting on the trade above ( BKX AUG 80/75 call credit spread) and that reduces the loss to $1,050 NET LOSS.

REMEMBER BKX has to close below $75 at expiration and you will reduce your loss to only $1,050. However, if the $75 call strike price gets voided the additional loss potential could be as much additional as $8,600 if another adjustment is not made and the Issue finishes above $80.


Alternative #2: Roll down the position and DOUBLE the number of spread contracts on the PUT side if you are assuming BKX and the Banking sector has bottomed or near a bottom. In essence you are reversing the trend



Since we received $400 on the original trade and had to close out the original trade
for a lost of $2,850. That is a $2,450 lost. Now add the $1,600 net credit you receive from putting on the trade above ( put credit spread) and the reduces the
loss to $850 NET LOSS.

REMEMBER BKX has to close above $60 at expiration and you reduce your loss to only $850. However, if the $60 puts strike price gets voided the addition loss potential could be as much additional as $8,400 if another adjustment is not made and the Issue finishes below $55.00


Alternative #3: ( For not additional margin requirement with the right broker )
Roll out the position on the call side and also add a put credit spread
creating an iron condor. I have given you a suggestion on strikes to roll
however, you may select higher or lower strikes depending on how aggressive you want to make this trade. Remember you are putting on the put side if
you basically believe that the worse of the banking situation is over. IF
however, you believe the banking sector has a few mor negative suprises up
its sleeve stick with Alternative #1 or #2 depending how much you are trying to reduce the loss from our original spread below
ORIGINAL SPREAD
BVKHM 62.50 AUG CALL
BVKHN 67.50 AUG CALL

Since we received $400 on the original trade and had to close out the original trade
for a lost of $2,850. That is a $2,450 lost. Now add the $1,100 net credit you receive from putting on the trade above ( the iron condor) and the reduces the
loss to $1,350 NET LOSS.

REMEMBER BKX has to close between $57.50 and $75 at expiration and you reduce your loss to $1,350. However, if the $57.50 or the $75.00 price gets threathen the addition loss potential could be as much addition as $3,900 if another adjustment is not made and stock finishes above $80 or below $52.50



Alternative #4: ( For no additional margin requirement with the right broker )
Same as above except you DOUBLE the contracts on both sides
if your original position was a 10 contract spread. You do 20 on each side
if your original position was a 20 contract spread. You would do 40 on each side
( remember with the right broker the margin is only marked on one side of the iron condor)




Since we received $400 on the original trade and had to close out the original trade
for a lost of $2,850. That is a $2,450 lost. Now add the $2,200 net credit you receive from putting on the trade above ( the iron condor) and the reduces the
loss to $245 NET LOSS.

REMEMBER BKX has to close between $57.50 and $75 at expiration and you reduce your loss to $1,350. However, if the $57.50 or the $75.00 price gets threathen the addition loss potential could be as much additional as $7,800 if another adjustment is not made and stock finishes above $80 or below $52.50


IF we do the same strategy and use a 2.5 strike price difference we would use 40 contracts. ( it is the same margin as 20 with a 5 strike price difference.
(SEE BELOW for 40 contracts and 2.5 strike difference.)



Since we received $400 on the original trade and had to close out the original trade
for a lost of $2,850. That is a $2,450 lost. Now add the $2,800 net credit you receive from putting on the trade above ( the iron condor) and the reduces the
loss to
a $350 NET GAIN.

REMEMBER BKX has to close between $57.50 and $75 at expiration for you to make it a $350 NET GAIN. However, if the $57.50 or the $75.00 price gets threathen the addition loss potential could be as much additional as $7,200 if another adjustment is not made and stock finishes above $80 or below $55

These are some suggestions if you decide neither to CLOSE out or hold the current position as we are doing for now.

Good Luck, and Trade smart

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