Closing Out the Wells Fargo Spreads

Yesterday I shared with you some trades I made in advance of Wells Fargo’s (WFC) earnings announcement before the bell today.  I bought 30 Feb-13 – Jan2-13 35 call calendar spreads for $.34, shelling out $1020 plus $75 in commissions at thinkorswim.  I also bought 30 Feb-13 – Jan2-13 diagonal call spreads (buying 36 calls and selling 35.5) for a debit of $.16. (There is a small maintenance requirement here for one day.)  These cost me $480 plus $75 in commissions.  My total money at risk is $1500 plus $150 in commissions, or $1650.

Earnings slightly exceeded the whisper numbers but the stock fell about $.60 from yesterday’s close (a change which was well within the profit range.  Rather than try to squeeze out a few extra dollars of profit, I decided to take the gains that were there at 10:30.

I bought back the Jan2-13 expiring calls for $.03 (thinkorswim does not charge a commission when you buy back a short call for $.05 or less).  Then I sold the Feb-13 36 calls for $.31.  This worked out to a net credit of $.28 compared to the $.16 I had paid for the spread.

Then I placed a limit order to close out the 35 calendar spread for $.55 and it executed quickly.  That spread had cost me $.34 so there was a nice profit there as well.

In total, I collected $2490 for the two spreads and paid $112.50 in commissions for a net gain after commissions of $727.50 ($2387.50 - $1650.00).

These trades made 44% on the investment for the day.  I might have collected a bit more if I had waited, but as the old adages go, you don’t go broke taking profits, and bulls make money and bears make money but pigs get slaughtered.

It is a happy day for me whenever I can collect 44% after commissions for a day of trading.  Most people would be delighted to make that much on their money for an entire year.

I will be looking for similar pre-earnings plays where strong implied volatility advantages are often possible, and will pass them along to you.

Happy Trading!

Terry