I closed my most recent position today. I am very pleased with the way the trade worked, and of course happy with the gains in the account. When I opened the trade the catalyst was very large trades in the September 50 to 60 calls. This extreme trading was also noted by several traders out there also. I liked what I was seeing and the stock was at a few interesting technical levels. Trading right at the 50 day moving average, and at the same level where it gaped up. I thought that was a great opportunity to get into the crazy potash and grain sectors. I think that this sector over the long haul is going to be great, but the short term catalyst of potential takeover and the volume in the options got me into the trade. Now that you know why I got into the trade let me summarize the performance of the trade and show you the results.
SUMMARY OF TRADE:
Please refer to the chart below for the visual of timing of the trade. You will notice three points of interest. Just below the chart you will see my complete explanation of each point of interest.
POINT 1: September 2, 2009 I opened the trade that I summarized in the post I made on September 1st. I took option 2 that I discussed. The big point on that was that I took on more risk to aid in financing the trade and looking for a strong move within the first few days.
THE POSITION (POINT 1):
Sept 2, 2009 Long 10 OCT MOS 50/60 Bull Call Spreads @ $2.65
Sept 2, 2009 Short 10 SEP MOS 50 Naked Puts @ $3.00
TRADE PLAN: Goal was to see a quick move up and to lock in quick gains and lower risk. I had mentioned that I would lock in gains or even close the position if move up was not made by the 4th. The catalyst was large option volume in the SEP Calls which had a very short time frame to expiration. Supported also by the technicals I mentioned earlier. My Stop was set if the spread was down $1000 or if the stock dropped to 48.
POINT 2: September 4th, 2009 MOS moved up nicely and I was able to cover the short position prior to the weekend as planned for a very nice gain of $1400. This removed the significant risk I had with the naked puts, and significantly lowered the break even point of the Bull Call Spreads. I always love being able to lock in a nice gain as planned and removing the risk over a weekend. It makes the sleep much better over the weekend in anticipation for the open on Monday. The stops of down $1000 on the spread or if 48 was reached in the stock were still in place. With the $1400 gain locked in this means I was going to have a minimum of a $400 gain on the trade even if stopped out.
THE POSITION (POINT 2):
September 4th, 2009 Long 10 OCT MOS 50/60 Bull Call Spreads @ $2.65 remains open. Covered the short 10 SEP MOS 50 Naked Puts @ $1.60 for a $1,400 Gain.
POINT 3: September 18th, 2009 I closed the position as the S&P 500 futures started rolling over with about 30 minutes left in the market. Triple witching often leads to the end of the day sell offs on Friday, and I also believe the market has had a very nice run. Also, MOS was approaching the 55 dollar resistance level which it has failed to penetrate 3 other times recently. I personally did not want to hold the position over the weekend again because negative news of any sort could create a very rough day on Monday. It was fortunate that I closed the trade because Potash (POT) had negative news following the close and selling occurred in aftermarket for the whole sector. A little bit of luck always works. Other reasons for closing the trade was that the Call activity in the OCT strikes was not nearly as strong the last few days. Coupled with the downgrades that have occurred the last week I was ready to move away and with the nice move up during the day I felt I should lock in the gain and not be greedy.
FINAL TRADE RESULTS:
September 18, 2009 Closed Long 10 OCT MOS 50/60 Bull Call Spreads @ $4.55 Gain: $1,900 September 4, 2009 Covered the short 10 SEP MOS 50 Naked Puts @ $1.60 Gain: $1,400
Total Gain: $3,300 in 16 days (Less Commissions)
TRADE EVALUATION: This was a very good trade and I am very pleased with the price action and execution of the trade. The early execution of the trade with the naked puts allowed for a little extra time which paid off. The closing of the trade today was a good trade. MOS was approaching 55 which was resistance and the rolling over of the futures combined with the slowing of aggression in Call buying were good reads to close the trade and well executed.
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