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Wednesday, August 13, 2014

Diamonds (DIA) August Put Options

7/30/2014 (FP)

sold (to open) 8 August 2014 $165 puts at $0.64

Reasons for initiating this trade:

8/13/2014 (11:01:20 am, PT)

DIA trading around $166.46 (see chart)

buy (to close) all 8 puts at $0.22

NET PROFIT:  $307.68




Reasons for closing this position:
  • take profits (VERY important)
  • remove the risk from the portfolio



THE LESSON:
  • When I initiated the trade on 7/30/2014, I thought the 50 EMA could be the "support" (see chart)
  • Clearly, I was wrong.  DIA "broke support" and dropped all the way down to $163-ish on 8/5/2014 (see chart)
  • My DIA Aug $165 puts were "in-the-money" for quite awhile.  Closing my position at that time would have resulted in a large LOSS.  Don't panic when your short puts go ITM.  There's plenty of time, so wait.....
  • I decided to close my position on 8/13/2014 because DIA was touching the 50 EMA which could be a new "resistance" (see chart).
  • I normally wait until the stochastics are at the top before I buy back my short puts.  However, in this case, because I only have two days remaining (until expiration) and there's a lot of volatility, it's best to close the position and TAKE PROFITS.

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