Put Vertical Spread Video Tutorial (5/27/2009)

This is a trade I outlined in a series of video tutorials.

vertical spread ewz chart

Trade
EWZ June Put Vertical Spread 50/48
ROI
33%
Exits
1. Exit if I can lock in 80% of my initial credit (i.e. $.10)
2. Exit if cost to close >= twice initial credit (i.e. $1.00)

Why this strategy?

I outlined my basic motivation for this trade in the first video shown here.



Position sizing

This part of of the video tutorial covers position sizing, entering the trade, and planning exits.



Update 6/4/2009

I could have exited this trade for $.15 back on 6/2, which is very close the my target exit price, but I held on because the trend was still intact. No reason to give up some of my edge for no reason. I have an exit plan so I'll stick with it. Then a few days later, I almost regretted my decision to stay in. However, the secondary trend line held as seen here.

Vertical spread - following trend line

This video provides a more detailed update and rationale for staying in.



Update 6/9/2009 - Trade exit

I closed the trade on market open for $.10.  Total profit on the trade: $.40 x 2 contracts or $80. In calculating the ROI, I had $1.50 risk in the trade with a $.40 profit so the final ROI is 26%. This was a good trade overal.  It almost couldn't have gone more pefectly... not all of them do that.

Here's my final video wrapping the trade up.


Note: This trade discussion is for educational purposes only. I am NOT making any recommendations on the trade or the underlying stock or ETF. If you decide to follow this trade, please do so in a paper trading account. Trading options involves risk and some options strategies can result in losing more than the original amount invested.

thinkorswim, Division of TD Ameritrade, Inc. and Success With Options are separate, unaffiliated companies and are not responsible for each other's services and products.





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