This is one of my favorite trade in 2017 which I would like to share. It may not be the trade that makes the highest return but it is definitely a great example trade to show how I maneuver to flip a losing trade into a winning trade in style. As always options gives us a second chance to be profitable.
6 Mar 2017 – Crude oil futures was trading range bounce at $50.5~$55 since Jan 2017. Base on technical analysis, I opened 2 tight credit spreads (Bear Call Spread, BCS1 and Bull Put Spread, BPS1) to capture a credit of $310 per contract. In layman term, the strategy that I had put up will yield max profit at $310 if the crude oil price does not cross the red line (refer the diagram below). This strategy risks me max $190 per contract if the crude oil price crosses either side of the red line upon options expired.
8 Mar 2017 – Crude oil price slumped and crossed below the red line ($52). As I was asleep when this event happened, I couldn’t do anything. My BPS1 faced unrealized loss (less than max loss due to the time value even though it is deep in the money).
13 Mar 2017 – I waited patiently as I couldn’t find the best opportunity to repair my position between 8 Mar to 13 Mar. When Doji was formed on 13 Mar, it showed the market downtrend was halted. My BCS1 target profit was auto-triggered at debit $30.
14 Mar 2017 – Crude oil price touched the lower bollinger band and retreated. Coupling with fibonacci retracement at 61.8% and hammer candlestick pattern, it was a good opportunity to setup a bullish trade. I entered a new Bull Put Spread (BPS2).
30 Mar 2017 – Crude oil price was ranging around $47~$50 from 14 Mar to 30 Mar. My BCP2 target profit was auto-triggered during my vacation in Japan.
12 Apr 2017 – My BPS1 turned to a profitable trade. My BPS1 target profit was auto-triggered.
Note: ignore the 17Apr trade as it is a new open position which is not related to the structure discussed above
1. Total credit received: $450 ( $140 + $170 + $140 )
2. Total debit paid: -$100 ( $30 + $30 + $40 )
3. Total margin utilized: $190 (Max loss)
4. Total day spent: 38 days
5. Net Credit (Profit): $350 ( $450 – $100 )
6. Return On Margin: 184% ( $350 / $190 * 100% )