Here is an update on closure of my credit spread for PCP which I mentioned here. I opened that trade for a credit $1.25 and with Margin $3.75. The logic for the trade was, directional as it was breaking out of the resistance zone. I bought back the spread for $0.40 (rationale was that risk/reward was not good now, I wanted to release margin so I can use somewhere else). This credit spread resulted in 22.67% profit for holding period of 1 week.
Here is the closure of transaction.
Cheers and profitable trading,
OptionPundit
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{ 3 comments… read them below or add one }
Oops sorry I enter the wrong strike, it should be
AMZN @ 38.63
- Sell Feb07 37.5C @ 1.25
- Buy Feb07 35C @ 0.60
- Credit = 0.65
- Margin = 1.85
- ROI% = 35.14%
- Breakeven = 36.85.
Question:
What should I do, if the price did not stay above 37.5, but drop to 36.85? Should I buy back the sold leg?
thanks & rgds
tbw
TBW, are you referring to call or put? Coz if it’s call $35c can’t be cheaper then $37.5c.
Separately TBW, I don’t make suggestion or recommendation on how one should trade.
Assuming I was playing above bull put, if it starts to hit my break even point, I may want to buyback my sold leg. However, at the same time I will also look into the resistance/support areas to second my decision. Hope that helps.
Profitable trading,
OptionPundit
Hi OP,
Sorry, it should be put.
thanks
tbw