It’s February Options Expiration Week

By Jeff Brown on February 14, 2017

This week is February options expiration week. Our February options will expire on Friday. All three of our credit spreads scheduled to expire are looking strong right now. But, as always, we’ll send out an alert to close any of those positions if anything changes.

Our four March expiration credit spreads are also working in our favor. When we put these positions on, we were able to capture some solid premiums due to a temporary increase in volatility. Volatility has since dropped and our positions have benefited.

February Spreads

Feb 2017 $116/$111 bull put spread on the iShares 20+ Year Treasury Bond ETF (TLT)

Since the beginning of February, TLT has been bouncing between $118 and $122. It closed on Monday above $120 and has strong support around $119, therefore this credit spread is still looking good into expiration.

With our short strike at $116, we’ll keep an eye on the trade this week and send out an alert if anything changes. As long as this position stays above its 50-day moving average, we’ll be able to allow the credit spread to expire worthless for maximum profit.

The TLT bull put spread is a HOLD.

Feb 2017 $115/$110 bull put spread on the iShares PHLX Semiconductor ETF (SOXX)

SOXX closed Monday above $130, giving us a $15 cushion above our $115 short option strike price. SOXX continues to look bullish, and I expect that we will be able to hold this credit spread through expiration.

The SOXX bull put spread is a HOLD.

Feb 2017 $130/$125 bull put spread on the iShares Russell 2000 ETF (IWM)

The last few trading sessions were exciting for our credit spread on the Russell 2000. IWM jumped early on Thursday, Friday, and Monday. It was up 2% over those three trading days and is still showing strength.

As with the other two February credit spreads, this position is looking good into expiration.

The IWM bull put spread is a HOLD.

March Spreads

March 2017 $219/$214 bull put spread on the SPDR S&P 500 ETF (SPY)

Just like the Russell 2000, the S&P 500 has also reached new highs. That’s great for our bull put spread.

Even with a market pullback, we have a lot of cushion between the current price of SPY at around $232 and our short option strike price of $219.

As a result, I’m moving this position to a hold.

The SPY bull put spread is a HOLD.

March 2017 $125/$120 bull put spread on McKesson (MCK) 

The McKesson bull put spread is off to a great start. We took advantage of volatility in the pharmaceutical company after its earnings announcement. Since then, volatility in McKesson has dropped. This has reduced the value of our short option… which is exactly what we want.

We’ll leave this position open for now. There is a small chance a new order might get filled if there is a short-term increase in volatility.

The MCK bull put spread remains a recommended trade for a net credit greater than $0.55.

March 2017 $62.50/$57.50 bull put spread on American Electric Power (AEP) 

AEP slowly drifted higher last week, and its volatility dropped as well. This resulted in the credit spread decreasing in value by about half. Remember, as the credit spread drops in value, we get to keep more of the profit. Ideally, we want the credit spread to drop to $0 in order to maximize our profit.

AEP is currently trading above its 200- and 50-day moving averages. The 50-day moving average is rising as well. I expect it will rise above our short strike of $62.50, which would be great for this position.

The AEP bull put spread remains a recommended trade for a net credit greater than $1.10.

March 2017 $42/$47 bear call spread on SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

West Texas crude oil tested $54 again on Friday, but it fell back to $53 in trading on Monday. Light crude oil continues to see strong resistance around $54, which is positive for our bear call spread on XOP.

XOP continues to trade within the channel highlighted below, and I am expecting a further pullback this week. Our short option strike price of $42 now rests above the 50-day moving average.

This position is playing out as planned.

The XOP bear call spread remains a recommended trade for a net credit greater than $0.65.


Jeff Brown
Editor, Four Point Trader

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