NTES 77/72 Aug Bear Call Closed!

Johnny Trader has closed its first trade at a profit.

My NTES 77/72 Bear Call was placed as a momentum trade to follow the less than expected earnings report that caused the stock to gap down on higher than average volume. My expectation was that the stock would stay below $72 through expiration for maximum reward of $0.95 per options contract. On Friday NTES traded above $42 dollars and closed at $42.50. My short option at the 42 strike price would now be worth $0.50. I was able to sell to close my short options for $0.45. This means that instead of booking the $0.95 maximum reward, I booked a $0.50 reward (0.95 - 0.45). I had considered rolling the bear call up and out a month, but decided I would prefer booking the $0.50 since the stock was trading above $42 prior to close, above resistance. (This resistance now that it has been crossed I will view as support and will consider a bull put for Sep, possible future trade, but more on that to come)

This $0.50 adds $250 to my account. Profit is profit, and although $250 may not sound that exciting, lets take a closer look at the trade details:

Date Opened	8/14/09
Ticker	NTES
Position	Aug 47/ 42 Bear Call
Number of Contracts	5
Cost Basis	0.95
Reward Potential	0.95
Risk	4.05
Date Closed	8/21/09
Closing Price	0.45
Reward	0.5
Total Value	250
ROI	12.35
Length of Trade (Days)	8

So far, as mentioned above, the stock price went above my trade target and because of that I had a smaller reward. This doesn't seem ideal, but let's look at some numbers. My reward was 0.50 with a risk of 4.05. That is over a %12 return on investment (ROI). What is even better is that the trade was only active for 8 days before it was closed (only 6 trading days). I will take 12% ROI in 8 days any day. With a smaller account, it is important to look at these numbers.