Trade Closed: June 2009

On Friday I closed the June 1550 call for 2.20 after selling it for 1.65. This resulted in a loss of $57.50 including commissions. I closed the trade since the option was only 4.8% otm with a week left until expiry. The index could have easily jumped higher by more then 5%, putting the option itm. Typically to buy back an option during expiry week, you will have to pay the ask price on a wide spread. I didn't mind the small loss since it was the first loss since February. Also, at one time last week the option was selling for $8 and change, resulting in a loss (if I had closed it then) of about $700 or so! That's the danger involved in selling close to the money options - when I originally sold the option, it was 11% otm, but in this type of rising market, its best to follow the trend and not try to predict when it will turn. Of course, it will turn at some point, but I will try to take advantage of it by selling puts that hopefully have increased premium built into them from a rise in the VXN.

Index level: 1479.50
Buy to close: 1 June 2009 1550 call
Call Cost to close: 2.20
Initial Margin req.: $3,528.50
Commission: $1.25
Net debit: $221.25
Loss: $57.50
Days open: 16
Simple return: -34.85%
Yield: 0.00%
% to ITM when closed: 4.77%


I also closed out the June 2009 1050 put for $5.00. I closed this trade down to free up margin and remove the risk involved with holding this essentially worthless option for another week. For the $5.00 it cost to close, I'll sleep easier. Comparing this to a "high yielding" money market account yielding 1.40%, in the same amount of time and on the same margin, I would have earned $11.25! I'll stick with selling 22% otm options instead!

Index level: 1478.00
Buy to close: 1 June 2009 1050 put
Call Cost to close: .05
Initial Margin req.: $10,502.50
Commission: $0.00
Net debit: $5.00
Profit: $213.75
Days open: 28
Simple return: 2.04%
Yield: 26.53%
% to ITM when closed: 28.96%

I am still short the June 1150 put which I may also close out for $5.00, again to remove the risk involved in the option.