Properly exiting a position is a key part of a successful trading strategy. This week, I’ve got an interesting problem on my hands.
Last week, on the 20th of December I put on a killer papermoney trade. I was able to get a great price on a
Last night, I did a quick check on the option chains and noticed that the price for this spread has dropped to a range of $0.20 – $0.05. That means that I could likely buy this spread back for about a nickel or so.
The question now becomes what to do? I sold 75 contracts that expire in January and now have a the option to unravel the position and take the risk off of the table. Here are the things that I’m considering as I make the decision…
- Do I need the margin dollars?
- What is the calculated risk that is still in play on the trade?
- How much will it cost to take the trade off the table?
- Has anything changed since I have put on the trade that makes me feel as though it needs to be closed?
- Is there anything else to consider?
So, given those questions, lets run it down for the papermoney account…
- For the papermoney account, nope. I don’t need the margin dollars at all. There is plenty of margin available in this account.
- The calculated risk has dropped to almost nothing.
- Very likely, I could buy this position back for about $0.10 without any issues. Of course, you need to take into account commissions as well.
- There isn’t much that has changed in the marketplace since I put on the trade. The markets have moved up, but then again they had been moving down hard before I put it on.
- The only thing else on the trade that I would consider during this time of the year is taxes. Since this is a fake account, I don’t really care. However, I would consider this for my personal account.
So where does this all leave me? Well, I think the best bet here is to just sit tight and watch what the market does. I am sitting on a massive 120 point or so cushion on this position and I don’t see any real reason to give away more 13% or so of the profit based upon the risk.
I will consider this further for my personal account and post an update if I chose to unwind my personal position. I feel pretty good about the entire position, I will look at the tax implications as the week progresses. I won’t go into all the details of this here – just talk to your accountant!
However, if the market turns the other way and begins to run hard down, I will not hesitate to take my money and run – in both accounts! Anyhow, I hope your Christmas is great and that your trading year has been profitable. While I haven’t made a lot of trades in the account this year, it has been another very good one!
Merry Christmas!
