Happy and newly enriched followers of the Mad Hedge Fund Trader Alert Service have the good fortune to own a record ten deep in-the-money options positions that expire on Friday, February 18 at the stock market close in three days.
I have to admit that I traded like a Wildman this month, pedal to the metal, and 100% invested. This will take our 2022 year-to-date performance to over 24%. I like to think that is the end result of my 53 years investment in researching trading strategies.
Sometimes overconfidence works.
It is therefore time to explain to the newbies how to best maximize their profits.
These involve the:
Risk On
World is Getting Better
(TLT) 2/$149-$152 put spread 10.00%
(TLT) 2/$147-$150 put spread 10.00%
(TLT) 3/$150-$153 put spread 10.00%
(BRKB) 2/$270-$280 call spread 10.00%
(TSLA) 2/$600-$650 call spread 10.00%
Risk Off
World is Getting Worse
(MSFT) 2/$340-$350 put spread -10.00%
(SPY) 2/$465-$475 put spread -10.00%
(SPY) 3/$470-$480 put spread -10.00%
(AMZN) 2/$3400-$3500 put spread -10.00%
(TLT) 3/$127-$130 call spread -10.00%
Total Net Position 0.00%
Total Aggregate Position 100.00%
Provided that we don’t have another 2,000-point move down in the market in the next three days, these positions should expire at their maximum profit points.
So far, so good.
I’ll do the math for you on our deepest in-the-money position, the Tesla (TSLA) February 18 $600-$650 vertical bull call spread, which 50% in the money from its lower strike price which I almost certainly will run into expiration. Your profit can be calculated as follows:
Profit: $50.00 expiration value - $43.00 cost = $7.00 net profit
(2 contacts X 100 contracts per option X $7.00 profit per option)
= $1,400 or 16.28% in 15 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning February 21 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and make your broker find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday, February 18. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next month-end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
You Can’t Do Enough Research
