Locking In TLT And SLV Profits

on 3/9, I wrote about adjusting the original position in order to lock in a profit. It turned out to be fortuitous as the open profit – left unadjusted – would have eventually ended up as a loss (See Figure 3). By making the adjustment displayed in Figure 4 the trade ended with a profit (Figure 5).

Figure 1 displays the risk curves for the initial position.

Figure 1: Courtesy OptionsAnalysis.com

TLT fell from $121.29 on 2/27 to $117.78 by 3/8.

Figure 2 displays the open profit for the original position as of 3/8.

Figure 2: Courtesy OptionsAnalysis.com

By April option expiration on 4/21 TLT was back up to $123.54.

Figure 3 displays the end result if no adjustment had been made and the original position had been held until expiration. The trade gave back the$742 profit and lost the entire $973 initial investment.

Figure 3: Courtesy OptionsAnalysis.com

Now lets assume that on 3/8 we had adjusted by “rolling down” from a 7-lot of the Apr 120-115 bear put spread into a 4-lot of the 117-112 bear put spread.

Figure 4 shows the adjusted position as of the date of the adjustment (3/8) and the locked in profit of $210.

Figure 4: Courtesy OptionsAnalysis.com

Figure 5 displays the end result if the adjusted position was held until expiration on 4/21 (a profit of $210).

Figure 5: Courtesy OptionsAnalysis.com

Silver (Ticker SLV)

on 5/3, I wrote about 3 different potential adjustments to the original position based on ones outlook for SLV going forward. Turns about doing any one of the three would have been a good idea.

The original trade left unadjusted (Figure 8) would have so far given back all of the open profit and would now be sitting with a sizable loss. By making the adjustment displayed in Figure 9 the trade would have added some profit from the recent bounce in SLV (Figure 10).

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Figure 6 displays the risk curves for the initial position.

Figure 6: Courtesy OptionsAnalysis.com

Between 4/10 and 5/3, SLV fell from $17.00 to $15.59 and the straddle accrued an open profit of $700.

Figure 7 displays the open profit for the original position as of 5/3.

Figure 7: Courtesy OptionsAnalysis.com

Since 5/3, SLV has rallied back from $15.59 to $16.23.

Figure 8 displays the result if no adjustment had been made and the original position had been held through 5/22. The original unadjusted position has given back the $700 open profit and is presently showing a loss of $-460.

Figure 8: Courtesy OptionsAnalysis.com

Now let’s assume that on 5/3 we had adjusted the original position into a bullish position by closing the original straddle and buying 2 June 15 strike price calls.

Figure 9 shows the adjusted position as of the date of the adjustment (5/3) and the locked in profit of $530.

Figure 9: Courtesy OptionsAnalysis.com

Figure 10 displays the result if the adjusted position was held through the close on 5/22 (an open profit of $780).

Figure 10: Courtesy OptionsAnalysis.com

Summary

One primary advantage of trading options is the potential to “lock in a profit” and “let a position ride” while “playing with the house money.” Of course, if you’ve made it this far through this article then you already known that.

Written By: Jay Kaeppel