Day Trading & Forex Forum

A brief note, the max profit of 1.325 per contract on the first vertical (Bull Call) and the max profit of 1.35 on the second vertical (Bull Put) are just "that" - the MAX profit. The max profits are occasionally achieved if the trader holds the position until the expiry. In my case, the chart determined my exit.

Figure 4 shows that on 12-08-2008 the CVX had approached the 80.00 area which in the past has acted as a support. On that day the old support had acted as a new resistance. Observe on the chart that the CVX has traveled almost 10 points within four short trading sessions. Both of my vertical trades were bullish trades and the chart was telling me that it was unable to break the resistance, so on the next day 12-09-2008, I closed both of my verticals.

(click to enlarge)

Figure 5 shows that I had closed both of the debit spreads for 4.30 each; to recap I've got in at 3.65 and sold it for even the higher price of 4.30 making the difference on the two which is 0.625 per contract. I had two contracts thus the profit was $125.00; whereas I sold the Bull Put at the high price of 1.35 and bought it back at 0.65 receiving in profit 0.70 or seventy dollars. In both cases I made about the half of (the maximum profit or of) what I could have if I held it until 12-19-2008 which was the day of expiry. Just ask yourself: Does it make MORE sense to close the position which had achieved the half of its initial goal in four trading session than to hold it, risking what is already made? In my case, the answer is obvious.

In conclusion, in this article I have compared apples with apples. Both credit and debit spread had four commissions - two for entry and two for exits. In some cases, the credit spread might not have the exiting commissions, yet in this case I have selected the trades of the same number of commission on the very same underlying. In short, when zooming in on the specifics there is very little difference between the credit and debit spreads. In both cases I was the seller of the premium which very much goes along with my belief that one should be trading options with the well-defined risk rather than trading them directionally without any spread strategy.