Happy Sunday!
Today's update is quite different from the usual trade.
Usually I place a trade and get some premium up front, and then close that trade for roughly 50% of that max profit.
This time, I placed a trade for $119, and then closed that for an additional $160 - to more than double my original profit with a total realized profit of $279.
Read on for the deets!
This week:
$279 profit in Amgen (AMGN)
$279 profit in AMGN
Some time ago I placed a put ratio trade in AMGN - I bought one of the $280 puts and sold two of the $275 puts for an initial premium of $119 for the options cycle expiring March 15 (this past Friday).
The unique feature about put ratio spreads is that if the stock ends up between the $275 and $280 puts, you can potentially make even more than the initial premium on the trade.
On Thursday, AMGN was trading at just about $275 with 1 day to go and the trade could be closed for $160 credit, which meant there were 3 broad outcomes:
AMGN jumps above $280, which means I keep 100% of the initial $119 premium, but no extra profit.
AMGN hangs out between $275 and $280, with a potential extra profit up to $500.
AMGN drops below $275, which makes it a losing position and I'd have to roll the position and possibly stay with it for a long time.
As you can see from the screenshot, I opted to close the trade right then, take the extra $160 profit and move on.
I was walking away from extra profit (in fact my target profit was $250), but it also completely takes my risk off the table and I can move on.
I couldn't have known it at the time, but AMGN went on to close at $268.87, or nearly $7 away from $275 - which meant I definitely would have had to roll this position and be stuck with it for at least another month.
Ultimately this is a lesson in trading psychology. There are many times in the past where I would have waited to see if I could have made that extra $250 profit - but I've learnt that it's better to take profit and move on, rather than try to squeeze every dollar out of a trade.
I also initially placed this trade like a live demo for my January options course, so I'm extra thrilled that it turned out with more profit for them, as well as an excellent demonstration on how to manage trades.
As always, even if you're not in my course, subscribers to my Bread Crumb subscription get full access to my trade entries and exit.
It costs $49 a month, which means this trade alone with $279 profits would have given you a 5x return. In one trade!
Closing thoughts & useful links
Markets are looking a little antsy at this point, the VIX has been peeking its head above 15 quite a few times in the last few weeks.
I'm still waiting for more volatility before getting more aggressive with trades.
Have a good weekend!
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This article is for educational purposes only. This is my own portfolio which is being managed according to my goals and risk tolerance. Your situation is likely different and you should do your own due diligence before investing in stocks or options.