FDX fell $2.28 (about 2.6% from yesterday’s close) at the open and then bounced back up almost a dollar quickly. I knew it would be a bumpy morning after their disappointing earnings call earlier in the morning, but I feared volatility would wane very fast and FDX would start inching higher before I could sell my single long put that expires on Friday.
Rather than play games with it and try to pick the best exit price, I entered a limit order just above the ask price and watched it slip away from me. I lowered it by 20 cents and watched it slip farther. Then I saw it start to turn lower. I debated changing my ask price again, but my order hit before I could. While FDX was trading at $87.78, I sold to close one FDX September $90 put for $2.40 and received $239.49 after commissions.
This put was the extra hedge I added to my FDX put spread from last month. This little crutch I added to the position gave me a realized gain of $23.73. That’s not much, but for my sanity as I entered into selling spreads, it helped the stress of the trade. After only a month, I’m less stressed about entering these trades and probably won’t add many extra puts with my spreads in the future. I’m not saying I’m ruling it out, there will certainly be times the additional insurance is worth its price, but as common practice don’t expect to see a lot of them from me.
By closing it today, I changed the breakdown of my profit potential greatly. Originally, I said I’d make $85.80 if the long put expired worthless, but since I pulled in a little profit from it, I’ll end with a gain of $325.29. That’s assuming FDX doesn’t go into a free fall from here of more than 5% in three days. It’s far enough out of the money from my short put that I’m risking the next few days to let it expire worthless. My return should be 6.95% or 76.99% annualized.
Since I sold this put, FDX has fallen more. It’s close to 1:50 as I write this and FDX is down to $86.80 which moves the September $90 put up to a bid/ask of $3.20/3.25. I could’ve waited to close it until later in the week, but since I expect any further declines to be somewhat limited, I didn’t want to be greedy and miss my opportunity to profit. As it turns out, being a little greedy would’ve been a reasonable risk.