The Money Tree

Safely Generating Income in Retirement

Update – PBR Trade

Posted by mounddweller on January 25, 2012

Fellow Traders,

I closed out my position in PBR today.  Specifically, I BTC 3 JUL $31 puts at $2.57.  As you can see from the list of transactions below I had been in PBR for quite some time (for me anyway).  I initiated my trade in PBR back in May 2011 by selling OTM naked puts at the $32 strike.  After these expired I wrote another round of puts at the $31 strike.  This was followed by a third round, again at the $31 strike.  It was at this point that PBR fell through support and I began rolling out my puts to avoid assignment.  I had to roll out my puts three times before I was finally able to close the position at a profit.

All in all I didn’t do too badly on this trade given the depth to which PBR plunged after falling through support between $31 and $32.  You can see I actually took the opportunity to sell additional puts at the $20 strike when the stock was down around $23.

Here’s a 1-year chart for PBR.

So, after holding onto this position for 247 days, why did I choose to close it out and not wait until it got closer to my JUL expiration?  Two reasons…(1) PBR and the overall market have had a significant run-up in the past several weeks.  I wanted to exit, with profit in hand, before the market and/or PBR reversed and I ended up giving back some of my gains.  (2) What had originally acted as support between $31 and $32 is now going to act as resistance.  Who knows if PBR will be able to punch back through and continue onto higher ground or fall back.

All in all I’m pretty proud of this trade because it shows that if one is patient and actively manages a position you can dig yourself out of a substantial hole.

Regards,

Troy

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