DB,
On FNM, I entered the trade on Friday, as per my post (adding to a previously entered position which has already gone into profitability). The setup is basically a solid downtrend which seems likely to continue or chop in the $50~$55 zone.
I was able to enter it a bit more favorably than I had posted, buying the Jun 60 put for $6.4 and selling the Jun 55 put for $3.4. With a $12.95 commission, I paid $6412.95 and received $3,386.93, so it cost me a net $3026.02.
stockcharts.com[h,a]daclyiay[pb50!b20!f][vc60][iut!Lah10,30,5!Lc20]&pref=G
As you can see the position is now fully in the money (meaning that if yesterday were expiration I would receive full profitability, a 65% gain, on the position), but it won't "mature" until June. So we have time and a waiting game. The position could move against me, of course, and if it did in some significant way I might have to figure out an exit strategy. But as I noted, FNM can take several paths: it can rise (bad), it can chop here (good), it can fall (good). The trend is down, though, and with 2 out of the 3 options favoring me, I like it.
Further, looking at both sides of the option spread right now, and assuming a flatline chop on the chart, the short put (55) will erode 100% ($3.40 to zero), whereas the long put (60) will only lose 28% of its value ($6.40 to $5.00). At any price below $55 on expiration, this ratio of erosion will stay the same, and yield the same result, $5.00 for every $3.03 paid, or 65%.
The next month is critical, and will give me a good idea as to the strength of the current trend.
Kb |
