Fund A CLOSED - target met

Fund A Closed. Target met. Net value increaed from $50,000 (1-Sep-08) to $100,470 (9-Jan-09) in about 4 months (target was 12 months). Congrates.

Kept 20% commission (i.e. $10K) on the $50K profit made. Returned $90K to investors. All investors requested to continue to stay invested. So will open a new Fund D with an initial investment of $100,000 (starting 10-Jan-09).

This is an Absolute Target Fund which has very specific target by Profit Amount and/or Time. This fund will be closed once the targeted Profit or Time has been reached.
Targeted fund to close within 12 months or upon achieving 100% profit whichever occur first.

Fund A Status after closing for Fri 9-Jan-09

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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.

Fund A Status for Monday 5-Jan-09

Have not been trading for sometime.
The market has been on the up trend in the first few days of the new year 2009. Believe that the market will be range bound or slightly on the downside over the next few weeks. Some of the financial stocks and credit card issuers still having relatively high implied volatility. So decided to setup vertical spread (Bear CALL spread) on some of those stocks. If my decision is wrong and these stocks price continue to go upward, will need to cut lost at break-even point or with some loses.

Choosing spreads where the potential gain vs potential lost is at a ratio of 1:5 (or 1:4) minimum. E.g. for BAC the amount collected from selling the vertical spread is $0.30. The distance between the strike prices BAC-CALL-Jan-15 and BAC-CALL-Jan-16 is $1.00. Max potential profit is the $0.30 premium collected upfront. Max potential lost is $0.70 (i.e. $1.00 minus $0.30). The reward/risk ratio is 42.8% (i.e. $0.30 divided by $0.70) which is consider very good. Any reward/risk ratio of 20% (or 25%) and above is consider good.
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Setup (Sell-To-Open) Bear CALL spreads for MS, C, BAC and COF.

Fund A net value is $92,062.
Cash on hand is $103,220.

The entire setup currently at a lost of -$3,030.

100% target profit will be achieved for these vertical spreads if at the expiry Friday, the Stock price do not cross over the nearest CALL option strike price of the vertical spreads.

POSITION MANAGEMENT STRATEGY
Stop Lost : to close position if the lost is equal to OR the lost at Expiry Friday will be greater than the premium collected upfront.
Collect Profit : to close position when the profit is at 80% or more of the max potential profit (i.e. the premium collected upfront).

OPEN POSITIONS