Follow-up #1 – Mixed Horizontal Calendar Spread on Units of XIU
In our article dated November 28, 2016, we established a mixed horizontal calendar spread on units of XIU (the iShares S&P/TSX 60 Index ETF), looking to take advantage of relatively stable prices until the options mature on December 16, 2016.
Initial position as at November 25, 2016 (value as at December 16, 2016)
Price of XIU on December 16, 2016 = $22.65
- Sell 10 put options, XIU 161216 P 22.25, at $0.17 ($0.00)
- $170 profit
- Buy 10 put options, XIU 170120 P 22.25, at $0.39 ($0.13)
- $260 loss
- Sell 10 call options, XIU 161219 C 22.25, at $0.24 ($0.40)
- $160 loss
- Buy 10 call options, XIU 161216 C 22.25, at $0.45 ($0.50)
- $50 profit
- Total loss of $200
Upon expiration on December 16, XIU units are trading at $22.65. Closing our positions at the market price would result in a total loss of $200 ($0.20 per unit). However, instead of completely closing the position, we can hold on to the 10 put options, XIU 170120 P 22.25, that we had initially bought at $0.39 per unit, since we expect the price of XIU to fall by their expiration on January 20, 2017. Since the options are worth only $0.13, the cost of keeping them is $0.33 per unit, or $330 for the 10 contracts (i.e. the total loss of $0.20 per unit plus the value of the puts, which is $0.13 per unit). Over the next few weeks, we will follow up on this position.
Good luck in your trading, and have a good week!
The strategies presented in this blog are for information and training purposes only, and should not be interpreted as recommendations to buy or sell any security. As always, you should ensure that you are comfortable with the proposed scenarios and ready to assume all the risks before implementing options strategies.
President
Monetis Financial Corporation
Martin Noël earned an MBA in Financial Services from UQÀM in 2003. That same year, he was awarded the Fellow of the Institute of Canadian Bankers and a Silver Medal for his remarkable efforts in the Professional Banking Program. Martin began his career in the derivatives field in 1983 as an options market maker for options, on the floor at the Montréal Exchange and for various brokerage firms. He later worked as an options specialist and then went on to become an independent trader. In 1996, Mr. Noël joined the Montréal Exchange as the options market manager, a role that saw him contributing to the development of the Canadian options market. In 2001, he helped found the Montréal Exchange’s Derivatives Institute, where he acted as an educational advisor. Since 2005, Martin has been an instructor at UQÀM, teaching a graduate course on derivatives. Since May 2009, he has dedicated himself full-time to his position as the president of CORPORATION FINANCIÈRE MONÉTIS, a professional trading and financial communications firm. Martin regularly assists with issues related to options at the Montréal Exchange.
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