Tuesday, February 14, 2017

Closing a Put Spread on $TSLA, opening a short position on $NUGT

I closed out the put spread I sold on $TSLA (Tesla) today.  I had sold a put spread yesterday with a Friday expiration, which is a bullish bet, and the stock jumped from $276 to $283 and it looked like it might pull back.  I had a pretty risky position if it turned against me in such a short time frame, so I closed it out for a debit of $1.1, making close to a $200 profit overnight. 

I'm pretty happy with it, I would prefer to let a winner ride, but seems like the right move to take it off. 

I also closed out a put spread from a week ago that I hadn't posted, so I won't bring that up.  I prefer to only report on trades that I have been upfront with, not claiming a winner just after the fact.

How Option Spreads Work

For those that don't do a lot of trading in options, or spreads, just a comment on what I am doing.  If I sell a put spread, that is actually a bullish bet.  I am selling a higher strike put for more money, and buying a lower price put for less.  It creates a net credit, and if the stock price stays above the higher strike, I keep the entire credit. 

If I sell a call spread, it works that opposite and is a bearish bet.  See below for a real life example.

Selling a Call Spread on $NUGT

Today I sold a call spread in $NUGT, the Direxion 3 times leveraged Gold Miners ETF.

Sell $13 March 17 strike for $1.16
Bought $17 March 17 strike for $0.35

If $NUGT ends up below $13, I keep the 81 cents.  These are regular options, so everything is times 100, then times of the number of options.  Usually I don't say how many that is, but today it was 5, so I have chance to earn $408, while risking more.  The risk is mitigated by the fact that the stock price was $12 when I put this on.  Unfortunately, it went up during the day and closed at $12.46.  Not a good entry.

Because $NUGT is a 3x ETF, I have the chance to see some decay from rebalancing.  Maybe not too much in just a month. 

Enjoy your trading.

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