Stock / Symbol: [private_monthly]Peabody Energy / BTU[/private_monthly]
Original Option Strategy: diagonal call spread
New Option Strategy: calendar call spread
Price at trade entry: $59.54
Price at this adjustment: $55.70
Adjustment: This trade has gone a bit against us and we want to mitigate our risk on this trade. We're going to roll the short Jun 65 calls into the Jul 60 calls by buying back the Jun 65's and simultaneously selling the Jul 60 calls. With most of the premium gone from the Jun 65 calls, we're booking a 12% uncalled return. Our cost basis on the trade is reduced from $850 down to $664 with this adjustment. If [private_monthly]BTU [/private_monthly] trades substantially lower from its current level in the next few days / weeks, we'll buy back the short July 60 calls for a quick profit. If the stock turns around and looks to head higher than 60 by July expiration, we'll add some protective calls.
Max Risk: $664 (originally $850)
Max Reward: $74 or 11% by Jul 2011 expiration
Profit Range: $59.17 - $60.98
Max Profit at: $60 by Jul 2011 expiration
Uncalled Return: 22%
Trade Details:
[private_monthly]
BTC -2 BTU Jun11 65 Calls
STO -2 BTU Jul11 60 Calls
for a net credit of $0.94 per contract
[/private_monthly]
If it looks like BTU will close higher than 61 by July expiration, we’ll first look at the value of the short July 60 calls. If they’re trading near the price we sold them for, we’ll buy them back. If we buy them back, we’ll sell either the 62.5 or 65 strike calls. If the value of the 60 calls has doubled or more, we’ll look to buy the July 62.5 or 65 calls to allow us to participate in the upside movement of the trade.