How Do I Calculate My Profit Goal?

One of the most frequent questions I get from my mentoring students is how to calculate where to exit a trade for your profit goal. Some trades have margin while others don’t and some trades are debits and some are credits. This can all lead to confusion as to what a closing order should be.

Ignoring commissions for this example, if you have a trade that costs $250 debit and the margin is $1000 what would you want to sell it for to make 10%?-
The trade cost you $1250 so you need $125 ($1.25) more than you paid you make 10%. So $2.50 you paid + $1.25 is $3.75. $3.75 is your sell price for 10% profit.

If you have a trade that gives you a $250 credit and the margin is $1000, what would you want to sell it for to make 10%?-
$1000 in margin minus $250 target = $750 which is the cost of the trade. So you need to buy back this credit spread for $75 or .75 less than you paid for it. So if sold at a $2.50 credit, the closing target is $1.75.

You can simply add in your commissions to the cost of the trade and set your closing order appropriately.  I hope this helps traders with this frequent question.

Mark Fenton

mark@sheridanmentoring.com

Took Profit from GOOG Calendar Trade from Monday Blog!

In Monday’s Blog, I talked about a Live GOOG Earnings Calendar I traded. I bought the April 28 Expiration  830 C and sold the Apr 21 Expiration  830 C for $9.55 Debit. GOOG was 828 when I executed the trade. Today, with GOOG around 823, $5 dollars lower, I sold out the spread for $10.05 Credit. That’s a 5.2 % yield in 2 Days! For every 1 contract, the profit was $50 on capital of $955, the initial debit. If you added in Commissions, our Community pays $ 1 per contract, the yield would be 46 divided by 955 = 4.8% yield (Commissions  barely affected the yield). Will  look to re-enter GOOG for another Earnings Calendar in tomorrow’s Blog.

Dan Sheridan ~ dan@sheridanmentoring.com

The War Drums are beating! Pre-Earnings Play in GOOGL

As of 12:35 PM central today, SPX is 2361  +6  and VIX is 13.52  +.65. That is unusual for VIX to increase on an up day, why is it happening?  Because there is unrest in the world and people want some insurance .  With the US bombing the Syrian Air Base last week, and the bombing of the Christian Churches in Egypt, people are a bit nervous. Throw in the fact that the SPX is up about 15% since November, and you can see why folk, especially fund Managers , would want some downside insurance with the VIX, and are willing to pay up. Any Trading Opportunities?  With this Friday a Holiday for the market, I am a little lighter in trades this week.

In GOOGL, here is  an pre-Earnings Calendar Play. Buy 1 April 28 Expiration  830 Call  and Sell 1  April 21 Expiration 830 Call . Total Debit $9.55 . I just bought this live at 12:59 pm central today with GOOGL trading at 827.79. Earnings will be the week of Monday April 24. The purpose of this Calendar is to put on a trade that shouldn’t have any Implied Volatility Risk. We are buying the long option at an Implied Volatility of around 22  and selling the short option at an Implied Volatility around 12. Why would anyone buy a high volatility and sell a low volatility? Because we are buying our long in an expiration that will be affected by earnings and we are selling are short Option in an Expiration that won’t be affected by Earnings. Net affect, the long options should stay at the current implied volatility levels or go higher and the short options implied volatility  won’t go up much and will start to decrease because they short options won’t be around to experience the wrath of earnings. As I said, I paid 9.55 Debit and would sell this out for around 10.30 credit, about 8% yield. My short expiration is in 11 days, I would like to be out of this trade by this Thursday if possible. If GOOGL goes against me, too far under 830 or too far above 8.30, and  the spread trades over $8.55, would probably get out.

Check out the big banner on Sheridanmentoring.com regarding our 2 Day Chicago Seminar, Jun 15-16.

Dan Sheridan ~ dan@sheridanmentoring.com