Thursday, May 27, 2010

Legacy position close out

I closed out what I considered a legacy position today. I had been holding naked $12.50 strike puts on JPM since March 2009. Because they were more than $25 OTM I was hesitant to even pay a .05 for something that should expire worthless, but it was a constant psychological position that I no longer wanted to be in. The theoretical pricing calculator said the option should be worth nothing. The BxA was .14x.21. I paid .18 and got out. It's been difficult because I felt as if I was writing a check for $360 for something that is worth nothing and not looking at it as I've made a few thousand profit. But there are 8 more months until expiration and theoretically anything can happen. Beyond the psychological desire to end the position the remaining reward doesn't merit the risk. I certainly wouldn't put this position on today, which in essence means it doesn't make sense to keep it. I sold to open at $3.80 so leaving .18 on the board is still netting 95% of the maximum possible in (14/22) = 64% of the time.

I have one more of these legacy positions that I want to work my way out of. I don't have the patience to wait 8 months for time decay. I'm also wanting to clear the books and kind of start from scratch a few months from now once I'm done with the mentoring program and formulate/implement my portfolio strategy going forward. I want to start with a fresh round number and no old positions so that will make record keeping easier.

No comments:

Post a Comment