Monday, 5 May 2014

GLD Structure Update #2 (Fully Closing Put Side For a Profit)

GLD trading up 1.09% following some bad news coming out of Ukraine over the weekend. On Friday I closed half of my put side since it has reached sufficient profit to fully cover the debit side of the structure. I am now closing the put side fully to eliminate all downside risk and take a small profit at the same time.

Let's take a look at the 115 Put I sold in detail.

Remember, the rationale for selling the put or put spread was to finance the call side structure.


a) 1:-2 (135:140) call ratio cost a net debit of $0.06

b) 1:-2:1 (135:140:145) fly cost us a net debit of $0.11

Initial Sale

a) naked 115 put: 41c

b) 115:113 call spread: 13c

Current NBBO for the 115 put is 0.22 x 0.23. Assuming fill at the ASK, you'll fully cover your debit on the call ratio plus a profit of $0.12 or fully cover the fly debit plus a profit of $0.07

The call spread is priced at around 8 cents, hardly enough to justify closing it out.

If you are thinking... why not leave it and let it expire worthless, after all we did go through all the support and macro analysis in Part 4?

a) that's not the original rationale for selling the put. 
b) look at the amount of delta risk vs. positive theta. you are assuming 6 times more delta risk to hold onto the position vs positive theta
c) no one ever went broke taking profits, you go broke waiting to take profits.
d) you are freeing up alot of margin, giving you further flexibility to adjust on the call side
e) the position no longer have any downside risk, you have successfully financed a $5 call ratio or fly into June. 

For the record, remaining position on GLD

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