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Credit Spread PCP : Profit 22.67%

Published on January 30, 2007

Credit Spread PCP : Profit 22.67%

January 30, 2007

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.

PCP Transaction

 Cheers and profitable trading,

OptionPundit

3 Comments

  • Avatar TBW says:

    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

  • Avatar optionpundit says:

    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

  • Avatar TBW says:

    Hi OP,

    Sorry, it should be put.

    thanks
    tbw

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