Thursday, March 29, 2012

Trade: Sold CF Apr 160/155 Credit Put Spread

CF Industries Holdings Inc. (CF) made a big rally from where I opened the spread yesterday and gapped up today.  Also, even though the market overall gapped up, it has since showed weakness.  Combine this with my thoughts on the materials sector below, I closed it out for $0.27 per spread.  That's 50% of max profit in 1 day.  I'll take that every time.  Who knows, the stock may even pull back again in a few days and I can put the exact same spread on for a third time in the same month.

Closed spreads for $0.27 x 100 x 4 spreads = $108 cost
$220 premium - $108 repurchase = $112 profit
$112 profit / $2000 margin used =  5.6% return in 1 day = ~ 435,000,000% annual return (yes, that math is correct)

Another significant pullback in the market today.  Was previously in this same spread and closed it out for a profit yesterday.  Basic materials have been selling off for a month or so, and I'm already somewhat weight towards that sector, so I was on the fence about this one.  With the pullbacks, however, came premium, so I was able to give myself some room.  At the time I put the trade on, I would need a ~10% further drop to be unprofitable.  OptionsHouse puts my probability of profit at 85.1%, and the strike peg is at 179 currently.  I also placed myself under the rising 200-day sma, lower Bollinger band, and there is intermediate support at 175.

Sold CF Apr 12 160/155 put spreads for ($1.26-$0.71) x 100 x 4 spreads = $220 premium received

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