Option Investor


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What a day!! Well, let's take advantage of it.

We put on a hypothetical short straddle. On March 6th we:

Sold 2 March SPX 1325 puts - SXYOE
Sold 2 March SPX 1325 calls - SXYCE
Credit of about $52.00

That gives us a profit range (at expiration) of 1377 down to 1273. I planned to hang on for awhile and let time decay do its thing.

The SPX went down to 1273 - any further and we would have either had to adjust or close the trade. Well, we got lucky. But, then again, our parameter was near the January lows, with a reasonable chance the market would bounce. And it did - big time. The market took off like a shot this morning, so we held on.

When the smoke cleared, the SPX closed at 1320.65. It was an invitation to buy back the 1325 puts and calls. There is still a week and a half left to expiration. Why tempt fate? It was time for me to GTFO. Are we leaving money on the table? Perhaps. But a lot can happen in eight trading days and I'm not greedy and I sure don't need the headache.

We bought back the 1325 puts and calls for $41.50. Since we originally took in $52.00, we locked in $10.50 ($1,050 per contract) or a total profit of $2,100. Sweet!

That's a nice chunk of change for about five days. Was it luck or skill? Call it what you want. I'd like to think it was a combination of both.

Trade smart and be careful!


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