Close out TRA Trade

• stevenplace
• December 7th, 2009

With the strong gap up this morning, I would recommend reducing or eliminating the rest of the downside risk in TRA.

Here’s the current risk profile:

As we are in a bull call spread, our profit potential is limited– it is capped at 650. We are currently looking at an unrealized gain of 550. So we have 100 left of potential profit– that is our remaining upside.

We now need to weigh that against the potential downside. What are the odds that we will give up the gains in the position? I would say given the volatility that could come into the market, the odds are high that we could see at least a gap fill going into options expiration.

Now with our position, we will realize the full profit provied TRA stays above about 38.50. I’d say those odds are high, but we still have the immediate downside risk.

I would suggest cutting at least half of the trade to reduce exposure to the downside.

The current mid on the 38s is 435; the current mid on the 39s is 350. So you’re looking to close out the position with around a .85 offer– I would first round up to .90 to see if you can get a fill and then go down by .05 increments.

I’m going to close half of the position and see where the day goes.

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