A trade adjustment in Eastman Chemical

I like the Specialty Chemical industry. I have a position in $EMN (Eastman Chemical, global chemical company which manufactures and sells a broad portfolio of chemicals, plastics, and fibers) for a client and did an adjustment yesterday to make the trade free overall. Here is the original trade:

  • Long the March 75 Call
  • Short the February 75 Call
  • This trade is called a Call Calendar. It was done for a net cost of $.56

The February 75 Call did expire last week thus allowing me to keep all the premium collected. This left my net cost at $.56 and so I wanted to reduce this now that we are into March expiration time-frame.

After some review of the chart, on a few different time-frames, I decided that it would likely rest or have a mild pullback. With that in mind, I made the following adjustment:

  • StO March 72.5 Call on a 2:5 ratio for $2.15
  • StO Mar 77.5 Call on a 3:5 ratio for $.25
  • So for each 5 contracts sold this brings in $505

Let me break this down:

For every 5 contracts of the long March 75 Call, I sold 2 March 72.5 Calls and 3 March 77.5 Calls. This trade has a credit so if I receive nothing for the March 75 Calls at expiration, the credit is my profit on the trade.

The stock has indeed pulled back today and this is the current pricing on the short option pieces:

  • March 72.5 Call is $.95/1.05 bid/ask
  • March 77.5 Call is $.05/.15 bid/ask