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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.

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.

GGB Closed on Friday June 19th at $10.18.

We started this trade on January 27th

We had an update here, herehere and here.

The call that we sold has been exercised, the call the we held long was used to cover the trade.  We had a gain of $1.10 on an initial capital requirement of $4.20, including all trading costs.  This represents a 5 month gain of 26% ($1.10/$4.20) or almost 63% APR.

Here is a Bull Put Spread (Linn Energy:LINE) a Credit Spread:

Sell October 2009 $20 Put on LINE (QGJVD) for     $2.05

Buy October 2009 $17.50 Put on LINE for                 $0.95

Net                         +$1.10 (less trading costs)

Max. Gain               $1.10 (less trading costs)

Max. Loss               $1.40 (+ trading costs)

Linn Energy is trading for $19.66 at the close of trading today June 15, 2009.

If Linn Energy is trading for $20.00 or more on October 17, 2009 both puts will expire worthless, we get to keep the $1.10 (less trading costs) premium.  If Linn Energy is trading for less than $17.50 we will suffer the maximum loss.  In between $17.50 and $20.00 we will have to make a calculation for the gain or loss.  I feel this is a great trade because Linn Energy is paying a +12% dividend and their earnings should be very solid as they have hedged their product for the next three years, at favorable prices.  I do not believe that Linn Energy will decline from here.

We are risking $1.40 (+ trading costs) and the return that I am looking for is about 78% in 4 months or 235% APR.

This trade was posted January 27, 2009.

Diagonal Spread Example:

Sell GGBBU            Feb 2009    7.5 Call            $0.35

Buy KDMAZ            Jan 2010   2.5 Call             $4.40

 

Net Cost                      $4.05(+Trading Costs)

 

Maximum Loss            $4.05(+Trading Costs)

 

GGB is trading for        $6.54 at the close on Tuesday 01/27/09

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GGB is now trading for $4.85 on Tuesday 03/17/09.

Sell GGBDA          April 2009     $5 Call          $0.40

The KDMAZ (Jan 2010 2.5 Call) is now trading for $2.65.

 

Net Cost                       $3.65(+Trading Costs)

 

Maximum Loss is now   $3.65(+Trading Costs)

 

If this option is exercised we will have a loss of $1.15 (+ Trading Costs) on this Trade Idea, if this option expires we will look at the next trade.  For this trade, we have had the worst scenario for a Diagonal Spread, which is the underlying stock (GBB) has declined dramatically (almost 26%).  If GGB stays below, but near, $5 we should be able to salvage this trade, provided it’s fall does not continue.

————————————————————————————————————————– GGB is now trading for $5.06 on Friday 03/20/09

 

Buy the GGBDA         April 2009        $5 Call                 $0.10

 

Maximum Loss is now     $3.75 (+Trading Costs)

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GGB is now trading for $6.88 at the close on Wednesday 04/22/09

 

Sell the GGBFU           June 2009         $7.50 Call            $0.45

 

Maximum Loss is now     $3.30 (+Trading Costs)

If this option is exercised we will have a gain of $1.70 ($7.50 Call sold exercise – $2.50 Call bought exercise – $4.40 Call cost + $0.35 Call sold expired + $0.40 Call sold – $0.10 Call bought back + $0.45 Call sold that was exercised).  This would produce a return of 42% ($1.70/$4.05) in 6 months not including trading costs.  Assuming $0.15/trade/per share (which is conservative), 4 trades = $0.60 trading costs, the return is $1.10 or 26% in 6 months.  We are still hoping that GGB does not trade above $7.50, yet and, we will be able to sell more options from now until January.