Changed MON Option Position Yet Again

I should have known better than to get out of my long put early on MON yesterday.  It dropped more than $4 this morning.  At least I knew enough to not sell my shares at the bottom of its dip though.  By 11:00 it had recovered some, but to possibly cut my cost some more I bought into a vertical put spread for a debit.

While MON was trading at $78.02 I bought to open one MON April 85 Put (MONPQ) at $7.80 and paid $790.74 with commissions.  At the same time the second leg of my put spread hit and I sold to open one MON April 80 Put (MONPP) at $4.30 and received $429.24 with the commission charge on my option contract only since this was entered as one order.  Those together cost me a net debit of $361.50.

Here’s my twisted logic on this trade.  I’m concerned MON might drop further, but think it won’t stay down too long so I wanted to buy another put to protect for short term losses and possibly profit.  MON can bounce back $10 in two days so I didn’t want to sell my shares straight away, especially since I have a call at the $85 strike that would then be a naked call.  I sold the $80 strike put because I wanted to cut my cost on the long put.  I only stand to gain $140 on this trade as it stands, but if can lose all $361.50 if MON rallies back above $85.00.  If that happens I’ll have better gains on the 100 shares I own.  My covered calls at the $85 strike will come into play at that point and I’ll bow out of MON gracefully since I’ve lost my touch of predicting its direction like I had last month briefly.  By the end of today’s trading MON was only down 15 cents to finish at $81.26.  I still have downside exposure and only a little upside potential.  These next two weeks until expiration should be interesting for MON and hopefully it close in the upper $70s or even low $80s so I can take a profit on today’s trades.

Here is my current MON position at end of the day on Friday 4/3/09:

• Own 100 shares
• Short 1 April 85 call
• Long 1 April 85 put
• Short 1 April 80 put