High Expectancy Trading

I closed this spread by purchasing the short options back on Thursday, capturing all the planned premium.

I opened this position on 5/12/08 by selling the 64 Puts and buying the 61 Puts for a net credit of .17.  I closed the position on 5/29/08 by buying the 64 Puts back at .04.  This is a gain of .13 per contract, times 100 shares per contract nets out a gain of $13 per contract.

I am holding on to the long 61 Puts to help with margin in July.  I’ll explain this in a later post.

The average margin required over this time period for one contract is $300.  This is lower than the last spread because this spread is only 3 strikes apart.

To determine how many contracts you could have sold on 5/12/08 just divide the amount you want to use as margin by $300. (again, I use 75% of my capital, and I call that 75% my Risk Capital)  Multiply the result by $13 (subtract commission) and you have your profit.  You would have made this profit in 17 calendar days! (the difference between 5/29/08 and 5/12/08).

The gain in those 17 days was 3.74% return on capital. (ROC - % return compared to the amount of margin required) The annualized ROC on this trade is a whopping 80.37%!  This means that if you made this bet with these same parameters every 17 days, for an entire year, you would gain 80% of your risk capital.  Wow.

I closed this spread by purchasing the short options back on Thursday, capturing all the planned premium.

I opened this position on 5/2/08 by selling the 64 Puts and buying the 59 Puts for a net credit of .25.  I closed the position on 5/29/08 by buying the 64 Puts back at .04.  The 59 Puts are not trading because they are so far out of the money and we are so close to expiration now.  This is a gain of .21 per contract, times 100 shares per contract nets out a gain of $21 per contract.

The average margin required over this time period for one contract is $500. 

To determine how many contracts you could have sold on 5/2/08 just divide the amount you want to use as margin by $500. (again, I use 75% of my capital, and I call that 75% my Risk Capital)  Multiply the result by $21 (subtract commission) and you have your profit.  You would have made this profit in 27 calendar days! (the difference between 5/29/08 and 5/2/08).

The gain in those 27 days was 3.84% return on capital. (ROC - % return compared to the amount of margin required) The annualized ROC on this trade is 51.97%.  This means that if you made this bet with these same parameters every 27 days, for an entire year, you would gain 52% of your risk capital.  That is excellent, in any trader’s book.