Adjusting The XLF Options Trade

Last month we opened a diagonal option spread on the XLF, after watching the financial stocks get hammered in the market for most of the year. It appeared that the XLF had found support at around $20 per share. A video was produced showing how the trade was set up, but since that time we have adjusted the position once and are considering a second adjustment.



This second video demonstrates how the two adjustments modify the risk and reward profile of the position, to help keep us profitable as the XLF continues to move in the market.

Keep in mind that this is not a recommendation to trade or trade advisory service, but intended as an educational opportunity to demonstrate how adjustments can be made to an options position to keep your trades profitable.

Christopher Smith
TheOptionClub.com

Diagonal Option Trade on XLF Featuring OptionVue TradeFinder

Yesterday, I began looking at the the Financial Select Sector SPDR, otherwise known by it's ticker XLF. This ETF made a bottom recently, and has found some support at $20 per share. With vols high, my thought was to sell some premium but I did not want to walk into a situation that I may very well regret.



Admittedly, this trade is not sexy. If I am right, and XLF consolidates, I should be able to safely sell premium each month out into January. If XLF drops below $20 per share, I will have a "free" Jan'09 $15 Put to limit my downside. This allows me the choice of taking assignment should the share price fall below $19 per share, then begin selling covered calls. Alternatively, I can simply roll the short put option each month even if it is in-the-money.

This trade won't make me rich, but I should be able to earn a fairly decent yield from it between now and year's end.

Christopher Smith
TheOptionClub.com

Call Calendar Spread Stock Options Trade

In my last post, I showed you one trade that did not work out quite as planned. That's just a fact of life when you're trading. The key is to be prepared and have a plan.

Here is low IV, bullish calendar spread on NRG Energy, Inc. Implied volatility was at a relative low, making it easy to buy the back month option. The stock had been on a tear, reaching new highs with regularity. On April 26th, I bought a June / Sept. $85 Call Calendar, creating a position that looked like this:



The expectation was that NRG would continue to trade higher, up into the center of the calendar spread's profit zone. Today, NRG is at $84.85 and the trade now carries a 27% profit.

June expiration is a long way off. It is unlikely NRG will stay put for that long, but I have a 27% profit in the trade right now. I will now be looking to adjust the position to capture the profit, reduce risk, and/or take advantage of continued upward moves. Of course, I can always close the position and take my profit.

This is just one of several trades opened during the last 30-days in my private Trading Room. All of the trades are limited risk, high probability option trades.

Good trading!

Christopher Smith
TheOptionClub.com