V – update – trade management, a favorable roll

As you know from my previous post and update on the V trade (Click here to see), we’ve taken off 3 of the 10 contracts for a profit. 

Since then, the underlying has moved up and away from our profit zone.  (Trade was entered with V at $74.20 on 5/21/2010 and moved as high as $77.49 on 6/10/2010.

Yesterday I rolled the remaining 7 short Jun $65 puts up and out to the Jul $70 puts for a credit of $1.67 (Bought back the Jun $65 puts for $0.07 and sold the Jul $70 puts for $1.60). This moves my upside breakeven price up to around $72.95 at current IV’s.  V is currently trading above that at $74.64 as I write.

Below is the current Thinkorswim analyze tab after the roll. (Click to enlarge)


As when I initiated the trade, I’ll keep $80ish as my mental stop.

This is a good example of a favorable roll at expiration week.  I was able to buy back my short puts for $0.07 and stay in this trade a bit longer.  Since I’m long the Sep expiry, theoretically, I can roll to short August puts as well in the future.  Had I lost faith in my bearish opinion on V, I would have taken the loss and closed the trade.  I’m still convinced that there is downside potential here.  By performing this roll, I stay in the trade.  By moving the short strike up by $5, I’m able to increase my chance of profiting as well compared to rolling to the same $65 Jul strike.

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