On December 15 I bought 20 call options for Jan 15 expiry at the $112 call strike in IWM ETF. This trade has produced significant gains to date. The problem is knowing when to exit the trade as it is an option trade with an expiry date. That means as the expiry approaches, the call options will lose premium until eventually they will be trading almost in lockstep with the call strike itself.
Many investors have been emailing wondering what strategies could be used to try to both protect the profits they already have and still enjoy possibly more profits if IWM continues to move higher which will drive up the call premiums. If such a strategy could be found it could assist in maximizing the return for the trade by squeezing out as much profit as possible.
As all the emails received are basically focused on the same question of what exit strategies could be used, I picked one of the emails to include below to provide some answers.
The investor who wrote in is up 125% on this trade and 32% overall for the year. With such a large gain on this trade, she is worried that she will lose the gains already made but if she exits too early she could lose out on further profits. Here is her question and some strategies for her to consider.
Investor Question:
Hi Teddi;
I entered your IWM Combo Seasonality trade but got in at a better price. I closed my credit put spreads the same day you did but I have not sold anything further yet. I have more than doubled my return and I am now up 125% in this trade. This year has been my best ever. I am up 32% this year. I have never been up more than 8 or 9 percent before joining your site. I am glad to have found your service! I am worried a bit on this IWM trade. The ETF looks like it isn’t going to move a lot higher. I have 40 call options (in a credit call spread) and I know you said IWM could move a lot higher into March. How should I stay with this trade. IWM looks stuck as it keeps moving sideways. I don’t want to get out too early but I also don’t want to lose my profit. My calls expire Jan 15, like yours. Do you think IWM can move a lot higher before then? How are you managing this trade. Thanks for a great year. I am a member for life or at least until you stop writing. Francine.
3 Exit Strategies To Maximize IWM ETF Trade Return
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