We’ve had our Euro Futures Options trade on for 20 days and it is up +12.1% on the Reg T Margin. I think it’s time to close this one. Here’s a chart of the Euro with our trade profit and loss shown.
Looking at the EURUSD chart, it looks like it’s in a trading range now and testing support around 1.35. Considering we have 75% of our maximum profit at 1.35, this seems like a good time to take the trade off. Here’s what the option chain and risk chart are as I close this trade:
We netted +$338 on maximum risk of $2788 or +12.12% return on this trade in 20 days.
You probably noticed I had no adjustments for this trade. I just let it go. Why could I do that? The risk on the upside (ie.. the wrong direction) was defined and small. The market moved in the correct direction I thought it would and it wasn’t a super fast move so I didn’t have to defend it.
This is a good example of setting up a defined risk trade and not over trading it. You can sleep pretty well with trades like this.
I want to talk about the SPAN margin a bit. The maintenance margin is only $288, which means that’s all your broker should require in your account for maintenance.
Why do I use $2788 to calculate the yield?
$2788 is the maximum risk you have if the EURUSD goes to zero (actually expires below 1.28). I’ve been burned in the past thinking the Margin I was using was really only $288 but this is the wrong way to use portfolio margin in my opinion. It is VERY EASY to over leverage yourself with portfolio margin. If you treat all of your trades as Reg T, you’ll keep yourself out of major trouble if you have reasonable risk management.
I’ll start looking for another trade for you.
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