Catching Up With The Market and Our Trading Results

It's been a little while since I've been able to post. With school out for Spring Break it was time to get away with the family. Upon our return, it was time to catch up with all of the work that accumulated while we were off having fun.

The April spreads were closed. With the market rallying hard heading into expiration, we were forced to close our trade for a loss. Let's tally up the damage.

As of February's expiration, we had managed to rack up an 11.75% return, or a total combined credit of $1.10. These profits were generated from those trades expiring in January and February, and are documented on this blog.

We sat March out. No trades were opened because I could not find a spread that provided sufficient return to justify the risk of opening it. That worked out well because the market sold off hard on February 27th.

For April, a $1.20 credit was generated from the sale of a 1,460 - 1,470 bear call spread. At that time, the outlook for the index was bearish. The bulls returned early, however. A bull put spread was opened at 1,355 - 1,365 for a .60 credit. The total credit for the trade was now $1.80.

The suspense grew slowly for the remainder of the month. The market did not trigger an adjustment of our position until Friday, April 13, 2007. Prior to that date, I had become concerned and decided to tighten up the spread. The put spread was closed for a .10 debit. The long 1,470 call was sold and rolled down to $1,465, for a net debit of .60. The net credit on the trade was now $1.10.

When the trigger was reached, we were left with the weekend to evaluate potential adjustment. With less than one week until expiration all we could do was close the trade. Resistance was expected at 1,460, and it appeared that we might be able to close the trade for a modest debit. It just was not meant to be. The bulls smashed resistance at 1,460 early on Monday morning and kept on running.

The put spread was closed for a nominal sum, but the call spread cost us a pricey $3.40.

That left me with a net loss for the month equal to $3.40 - $1.10 = $2.30.

The year-to-date return is a loss of $1.20 or -12%.

From here, we shake off our disappointment and move onto the next month.

Christopher Smith
TheOptionClub.com