I closed my XLE put calendar today for a credit of 1.22. My original debit was .99, which gives me a return of 23.2% in 8 days!

I rolled my Pfizer March 22.5 Calls to Apr 22.5 Calls. I received a credit of .40, when my previous cost basis was .23. That is a yield of 173% and I still have a few months to roll! Killer trade!

I closed my Honeywell calendar for a credit of 2.15. My original debit was 1.80, so that gives me a return of 19.4% in 10 days!

I closed my call calendar on Wells Fargo for a credit of 1.90. My original debit was 1.70, so that gives me a 11.7% return in 2 weeks!

I closed my FXI put calendar today for a credit of 6.05! My debit was 5.05, so that gives me a return of 19.8% in two and half weeks! Rocking!

Another trade booked! This was another one of my short straddles and I noticed that I was moving out of my 7 day exit window. I decided to take my profits and move on. Here is how I calculated the return:

90 * .30 = 27.00 Margin Requirement

2.45 / 40.10 = 6.1%

We closed our first winning trade! We were able to capture the volatility decay on SWIM and generate a great return in about a week’s worth of time. Here are our calculations:

 12.5 Strike Price * .30 = 3.75 (Estimated Margin)

(Original Credit – Debit) / (Original Credit + Estimated Margin) = Return

1.17 / 6.05 = 20.4%

At our last meeting, we discussed quite a bit on straddles. Collectively, we found a few trades that had high volatility where earnings were due. Here are some of the thoughts that went on:

SWIM – Volatility was extremely high and overall sentiment was bearish. I decided to place a short straddle at the 12.5 strike price. I noticed that previous earnings showed some movement either up or down, but not significant enough to take us out of our breakeven ranges. We received a 2.30 credit. I did not track down the total margin, so I am using 30% of the strike price as an initial level.

MORN – Volatility was high and the overall sentiment seemed bearish. Past earnings indicators showed the stock going down, which was a good indicator for us. The greeks looked pretty attractive as well. We received a 6.70 credit at a strike price of 65.

GFIG – Another interesting trade, but one thing to note was the spike up after earnings. We evaluated both the 85 and 90 strike prices and decided to go with the 90’s due to extra upside protection. We received a credit of 13.10.

Another big important lesson as we closed out our HSBC trade. When you do not have an exit strategy, you have nothing! Capital is at risk! Our original intent when placing the trade was to let the March options expire and make our return. We did not take into account that earnings would be during this period, which is also a very volatile period. Here are some other risks that occurred:

1.Broke topside resistance. Broke the 50 day and was testing the 30 day moving averages.

2.This is a credit spread, so we had margin involved. This makes the trade that much more riskier when it goes against you.

3.As stated earlier, earnings are due soon, which can cause IV to go up and cause much more fluctuations in price.

4.Existing trade could not be converted into another trade to mitigate our risk.

Some additional notes:

1.We did size for max loss and bought limited contracts, so that did not create any additional surprise or risk on our bottom line.

2.We placed our first bear call spread and now we understand the basics of when to place a trade like this.

3.Have a plan. How will your investors/risk management firm react when you say, “I don’t know” as to how you are mitigating risk?

Loss = .60 Credit – 1.40 Debit to Close = .80 / (5-.60) = -18.1%

 Thanks to Mojo and Gekkotrader for the feedback!

Another conversation at our weekly meeting was getting into calendar trades where there is more liquidity. ADR’s are a great place to look and their strike prices may be by single digits versus a huge range. We analyze the following trade and added another calendar to our existing portfolio. Here are the parameters:

Sell March 75 Puts – Credit of 2.44

Buy Apr 75 Puts – Debit of 3.43

Cost Basis – .99

The thought you may be wondering is, why such a tight trade? Well, with this ADR, they have something called quarterlys. This is a period where the option expires at the end of the quarter versus current month. This provides us with another roll opportunity. You can see with XLE, that we had 29 days until the March option expires and an additional 10 days for the quarterlys to expire. We thought that was pretty compelling with such a low cost basis and no stop loss required! What do you think?