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Wednesday, November 12, 2014

Spiders (SPY) Nov 188 Put Option

10/1/2014 (11:59 am, PT)

sell to open 1 Nov 2014 $188 put option at $2.54

I received $254 CASH immediately!

WHY did I place this trade on 10/1/2014?
  • SPY dropped 1.36% (when the underlying goes down, put prices rise)
  • "bottom" of stochastics (see chart)
  •  probability of success:  67%
Note:  SPY broke through its 50 EMA on 10/1/2014, so it may continue to drop (bad)

On 10/15/2014, SPY hit a low of $181.92 (see chart), so my Nov $188 put option was $6.08 in-the-money (bad).  However, I was not at risk of early assignment because there was a lot of "extrinsic" value remaining in my option.  

So.... I left my position open.  After all, what goes down must come up, right? 

11/10/2014 (7:14 am, PT)

buy to close my put option at $0.05 

NET PROFIT:  $241.18     SUCCESS!

By leaving my put option open, I was able to take advantage of SPY's recovery (see chart).

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