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This vertical spread trade was entered on January 17th.

SRS traded at $19.40 at the close on Friday July 17th.  Both Call options, the one bought (long) and the one sold (written), expired worthless.

We have realized our maximum loss of $3.50 (+ trading costs) or $7.80 (+ trading costs), depending on the strike prices chosen.  Our loss represents a 100% loss of the money at risk.

NOTE:  I am including this trade as a 100% loss, HOWEVER, SRS traded upto $111.22 on March 6th.  The low beteween these dates was $48.00.  IF we had placed a trailing stop order (to be explained in another post) we could have avoided this loss AND this trade would have been a WINNER of probably 75% OR BETTER.  I did not include these instructions in this trade, because I have not explained what a trailing stop is.  I would have had a trailing stop of 20% on the price of SRS (it would have been this large because of the volatility of SRS), which means that we would have exited this position when SRS was trading aroung $88.50-$89.00.

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This vertical spread trade was started on March 23, 2009.

SLV traded for $13.17 at the close on Friday July 17th.  Both Puts, the one sold (written) and the one bought (long), expired worthless.

We realized the maximum gain for this trade of $0.40 (less trading costs), if we assume $0.15/share as trading costs, we have a gain of $0.25/share.  We risked $0.75/share, which makes our return on this trade 33% (0.25/0.75) for four months or approximately 100% APR.

Please note that $0.15/share trading costs assumes that only one option contract was used.  These costs go down (dramatically) if more than one option contract is used which would raise the return of this trade.

Vertical Spread Example (Credit Spread): 

 

Sell SLVSM            July 2009    $13 Put             $1.20

Buy SLVSL            July 2009     $12 Put             $0.80

 

Net Premium               $0.40 (-Trading Costs)

 

Maximum Loss            $0.60 ($1 difference in strikes – $0.40 premium received) (+Trading Costs)

 

Maximum Gain            $0.40 (-Trading Costs)

 

SLV is trading for        $13.61 at the close on Friday 03/20/09

 Vertical Spread Example: 

 

Sell SRSGK            July 2009    55 Call             $22.00

Buy SRSGI            July 2009    45 Call             $25.50

 

Net Cost                      $3.50(+Trading Costs)

 

Maximum Loss            $3.50(+Trading Costs)

 

Maximum Gain            $6.50(-Trading Costs)  (=$10.00-$3.50)

 

SRS is trading for        $59.44 at the close on Friday 01/16/09

 

Or

 

 

Sell SRSGK            July 2009    55 Call             $22.00

Buy SAKGG            July 2009    35 Call             $29.80

 

Net Cost                      $7.80(+Trading Costs)

 

Maximum Loss            $7.80(+Trading Costs)

 

Maximum Gain            $12.20(-Trading Costs)  (=$20.00-$7.80)

 

SRS is trading for        $59.44 at the close on Friday 01/16/09

 

SRS is the Proshares Ultra Short Real Estate ETF.  This fund moves double opposite the Real Estate ETF.  If the Real Estate ETF move Down 10% The Ultra Short Real Estate ETF will move (approximately) UP 20%.