Banking and credit card issuer Stocks price came down nicely as projected over the past 5 days. BAC met target of 80% of max profit potential.So went ahead and closed it. Collected profit $4,136 within 5 days (upfront premium value collected $5,136. closed position & returned $1,000 back to the market), not too bad.
If held for another 5 trading days until Expiry Friday 16-Jan-09, can keep this $1,000 as well. Probability is still very high, but decided to close out and can have a good night sleep).
As of 5-Jan when BAC position was opened, the potential max risk vs reward is 2.89x (i.e. $14,864 potential lost assumed held till expiry at max loss vs $5,136 potential profit).
As of 9-Jan, the profit on-hand was already $4,136 and the additional potential profit to make was $1,000. The risk vs reward is 4.14x (i.e. losing the $4,136 already in the money vs additional reward of $1,000).
In worst case scenario, if unfortunately "gapping" occurs over the next 5 days before Expiry Friday (though it is very very unlikely), the max potential lost will be this "profit on-hand" of $4,136 and $14,864, a potential "lost" of $18,990 vs additional potential profit of $1,000 only. This risk vs reward is 19.00x !
Very high probability of keeping this additional $1,000 profit because current BAC share price is at $13.19, i.e. about $1.81 (13.7%) away from our nearest Strike Price of $15.00. This is a judgement call that we as the Traders has to decide. Our decision is to close the position, keep the profit and have a Good Friday night sleep. Cheers......
GREED vs FEAR ....... always.
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