February 7, 2014 - MDT - Anatomy of my IBM Trade

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.

I just received this from a client who liked the IBM suggestion on the 5th...This is options trading for free.

This gentleman honed his skills in the CBOE Pits.

FYI... he did the GILD trade as well.

He is much better than I, at doing and managing these types of trades.

So, here's how it works.

On Wednesday 2-5 I Bought 100 IBM weekly calls (Feb 7^th Exp) at $175 strike for .45c for total risk of $4500.00 gross out of pocket.

Today 2/7 Sold 50 IBM weekly calls (Feb 7^th Exp) at $175 strike for .90c collecting $4500.00 gross.? Net out of pocket 0 (not including commissions)
We now control 5,000 shares of IBM @ $175.00 for free.? We can sell the stock here and collect a gross profit $9,750.00, and if the stock falls below $175.00 for the rest of the day we have more profit potential.

However, MDT says there is more upside.? What to do?? I don't want the risk of owning IBM outright but I want to keep more upside potential.

Today I bought 50 IBM $175 puts @ .80c (I should have waited, they are cheaper now) for total risk $4000.00.
The problem is I'm a cheap bastard and I don't want to spend $4000..00.? So I sell 2000 shares of IBM at $177.00, locking a $2.00 profit ?or $4000.00 on my original trade.

Now I own 50 puts and 3000 shares of IBM for zero (plus my trading costs).? I make money if IBM goes up or down.? Worst case IBM closes at $175.00 next Friday. And I make zero

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