SNDK - my first credit spread

L

lenwhistler

SNDK @ $58.74
Sell April 60 put @ $3.90
Buy April 55 put @ $1.85
5 contracts each.
Maximum gain $1,025
Maximum loss $1,475
Commissions not included.
I sold the ITM options to capture the premium and bought the OTM options as loss insurance. Comments welcome.
 
Quote from lenwhistler:

SNDK @ $58.74
Sell April 60 put @ $3.90
Buy April 55 put @ $1.85
5 contracts each.
Maximum gain $1,025
Maximum loss $1,475
Commissions not included.
I sold the ITM options to capture the premium and bought the OTM options as loss insurance. Comments welcome.
More...

A spread is never the worse choice..."McMillian on Options"
GL..you have a bull put spread and believe that SNDK will be above 60 on Apr Exp..may the force be with you:D
 
Thanks DonnaV

The commision for this trade was quite high and will severely affect the trade. I'm with BMO Investorline and each position cost me $35.00 or $0.07 per option, thats $70.00 plus another $35.00 to close out the short side if I have to.

I'm looking into Interactive Brokers. I like BMO though because it's like a regular bank account with a bank card and checks.
 
Quote from lenwhistler:

SNDK @ $58.74
Sell April 60 put @ $3.90
Buy April 55 put @ $1.85
More...

Questions:

* What are the chances of my short puts being exercised before expiry?
* Will I be given the chance and time to buy them back instead?

I'm sure this has happened before on a credit spread, being exercised on the short position, and it would screw things up for me. Thanks.
 
Quote from lenwhistler:

Questions:

* What are the chances of my short puts being exercised before expiry?
* Will I be given the chance and time to buy them back instead?

I'm sure this has happened before on a credit spread, being exercised on the short position, and it would screw things up for me. Thanks.
More...

generally speaking as long as there is extrensic value (time prem) in the short strike you will not be exercized too much prior to exp. esp with puts. I'm in the same position with my put calendar's so I watch them very closely and usually roll 3-10 days prior to exp. Most experts say you should close the credit spread if you reach %80 of your profit expectation/and or if the short is down to .05 or .10 cents...you can also chose to close the short side only and leave the long to perhaps get a pop in the opposit direction. They say you should be consistent in what you do however ie if you close 4 days prior to exp then always close 4 days prior...that kind of thing because your over time consistency increases probability of success.

Many different ways to play it and eventually you will get a feel for which works better for you.
 
The other thing you need to ask yourself is after today has your opinion of the stock changed? It seems to be going south and you are in danger of losing. do you want to cut your loss at this point or do you have some solid thoughts that the stock will turn back and go higher. Some people will cut their losses. I generally will see it through since I have defined and accepted the risk....unless...the market is proving me wrong. It's a difficult call. good luck.
 
Thanks DonnaV

I'ts only 1 day in 3 of my position being down, with 3 weeks to go. My main concern is getting exersized on the ITM short puts before expiry. After this postion is closed I will then re-evaluate my loss/profit and plan my next position.

SNDK earnings is *April 20, day before last day of trading the April options. Should be interesting.

*According to the Yahoo SNDK boards, but I can't find confirmation of this.
 
Just my experience from trading credit spreads, is that losses should be cut ASAP. But try what you will. One thing you realize though is that if earnings is before APR expiry, IV will rise in the APR series and that would impact your trade negatively.

Oh and you need to switch brokers.
 
Quote from jj90:

Just my experience from trading credit spreads, is that losses should be cut ASAP. But try what you will. One thing you realize though is that if earnings is before APR expiry, IV will rise in the APR series and that would impact your trade negatively.

Oh and you need to switch brokers.
More...

Thanks jj90

Since earnings is an expected announcement I figure that IV is already priced in. But if SNDK announced today that they have very important news in 2 weeks then IV would jump, negatively affecting my trade.

Since today was my first day of 3 at a loss I will hang on into next week and decide what to do. My original plan was for this to be a 3 week trade and don't want one bad day to have an affect on me.

I'm looking into Interative Brokers.
 
You must log in or register to reply here.
Back
Top