With options expiration taking place today, I decided to trade out of my Freddie Mac FMCC position and take profits. Ideally, I would have liked to convert the options into a short position, however the number of shares available to short was unlikely to suffice conversion. The risk was had I converted, I could have faced an automatic cover at Monday morning’s market price. Given that FMCC had a twenty-five cent bid-ask spread, this was not a risk I was willing to take. Twenty-five cents becomes a sizable spread when trading 12 contracts that represent 100 shares each ($0.25 x 12 x 100 = $300).
The trade: I sold 10 contracts at $0.62 and 2 contracts at $0.61. These 12 contracts were originally purchased back in February for $0.16 each, netting me a pre-tax profit of $501.77.
