18th August, 2006

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Friday was option expiration, which means our call backspread trade has come to an end. Exxon Mobile closed out Friday trading at $69.10, which is 5 cents under our lower breakeven level. Here is the chart:

It's pretty much a breakeven trade as we only made $0.05 per option spread. Here's what happened:

Short 1 67.50 Call - expired in-the-money at $1.60. We received $1.75 when we sold it, to a profit of $0.15.

Long 2 $75 Calls - expired out-of-the-money. I.e. they expired worthless and we lose the entire premium we paid, which was $0.05 each - total $0.10.

So, net we made $0.05 per option trade.

Based off calculations I used in my spreadsheet, I figured that the maximum loss on this trade could only have reached $5.85, meaning that our P&L as a reflection of risk capital was 0.85%.

I'm actually a little disappointed with this trade. On Wednesday the 16th XOM closed at $67.57, with our option spread trading at a $40 credit. I was thinking of closing out at this point. This would have meant a profit of $125 per spread (we first put on the trade for a $165 credit) or a 21.37% return on maximum risk. But I guess that's just the way it is.