The Money Tree

Safely Generating Income in Retirement

Position Update – AMAT

Posted by mounddweller on June 20, 2012

Fellow Traders,

I closed out my trade in AMAT today.  You’ll recall back on June 1st I opened the following trade:

STO 10 JAN13 $10 puts at $1.16.

Today, with the press release of AMAT hiring a new president, the stock gapped up at the open and stayed there despite downward pressure from the overall market.  I used this strength to close out my position.  Specifically, I…

BTC 10 JAN13 $10 puts at $0.53

Doing so generated a 6.02% ROIC in 19 days.  That equates to an annualized ROIC of 115.67%.  Now many people are probably wondering why I closed the position after only having it open 19 days and on a gap up in the stock price as well.  Clearly, the stock is exhibiting strength and may continue to climb even higher.  Here’s why I closed out the position:

(1) I captured over 50% of the total possible profit in the trade in just 19 days.  The JAN13 options have 231 days remaining to expiration.  I decided to lock in my already substantial profit.

(2) There is a good possibility AMAT will turn back down again before the end of the year.  If it does I can re-enter the trade and potentially capture even more premium.

You’ll recall I placed a similar trade in AMAT earlier this year.  In that trade I made over 7% ROIC in about 30 days.  Adding the two trades together I have collected over $990 in premiums.  This money will go a long way to reducing the net cost of the 1,000 – 2,000 shares of AMAT I’d like to eventually add to my long-term portfolio.





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