More on the Pfizer Put Backspread

Part 1 | Part 2 | Part 3 | Part 4

Update - 13th January 2005

Open Position

Long 2 $22.50 Puts @ $0.15 - Now trading at 0.05 (-0.20)
Short 1 $25.00 Put @ $1.00 - Now trading at 0.55 (+0.45)

Net Profit of $25 per spread. (13.89% ROI).

Option Greeks as at 13th January

Well, it's approaching expiration...next Friday actually, and PFE is hovering around our upper breakeven point of $24.70 to end the week trading at $24.67.

Here is a snapshot of the option closing prices for Friday:

Which leaves our position looking like this:

Long 2 $22.50 Puts @ 0.15 - Closed at 0.05 (-0.20)
Short 1 $25.00 Put @ 1.00 - Closed at 0.55 (+0.45)

for a net profit of $25 per option spread (or 14% ROI).

Our position is likely to experience quite a bit of action this week - firstly because it is close to expiration, and secondly because the stock is trading very close to our upper strike price.

An option's sensitivity to changes in underlying price is at its greatest when the option is at-the-money and also when it is right on expiry, which is what we are seeing at the moment.

At this point, it is extremely unlikely for our position to make any money on a downside movement before the end of next week. So, we are hoping that the market edges higher to close above our upper strike price of $25 at the end of next week.

If this happens, we will keep the premium we received for establishing the position and realize a P&L of 38.89%.

Stay tuned... Next>>