Insurance Agent Trade on SLB

Schlumberger (SLB) is an oil services company. I don’t know a lot about oil services, but a quick look on the SLB page on Yahoo Finance showed that out of 30 analysts that follow the stock, many rate it a buy, and some even rate it a strong buy. Very few if any rate it a hold. That’s the kind of stock that I like for an Insurance Agent Trade.

I started following the stock in early December. At that time the stock was looking pretty weak. The 5-day EMA line was below the 20-day SMA line – not an indicator of booming performance that I want to see before I execute a trade.

But on December 23, SLB started to turn up, and while it was perhaps a day or two early, I entered the trade, selling a Put vertical with a Feb 75/80 for $.46. For 50 contracts, my maximum profit was $2300. Two months is a bit short for the typical Insurance Agent Trade, but I wanted to diversify my holdings a bit and add a shorter term trade to the mix.

SLB_Trade_1

On January 6, after three down days for SLB, the 5EMA was crossing below the 20SMA. I decided to protect my position slightly by selling some Call spreads. I sold the Feb 95/100 for $.39. Since I was still bullish on SLB, I wanted my position to have a bullish bias. So I only sold 26 Call spreads on top of the 50 Put spreads that I had sold two weeks earlier. This made my overall position an unbalanced Iron Condor. A perfect trade for a stock in a trading range with a bullish bias.

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“Why 26 Call spreads?” I hear you ask. Simple answer. I asked for 30, and could only get filled on 26. The goal was to have an unbalanced Iron Condor. Getting filled on 26 out of 30 was enough for me, so I didn’t try to go after any more.

Over the course of January, the stock made a higher low on January 10, and then a higher high at 91, but never really threatened the short call at 95. Overall the stock was stuck in a range, but it had a slightly bullish bias.

On February 3, less than 3 weeks until expiration, the price fell to support at about 86. That took the price of the Call spreads down. I closed the Calls for $.05, giving me a profit on the call side of $.34 each or $884.

In early February, I placed a Good Till Cancelled order on the Put spreads for $.07. Finally, on February 6, my order filled for $.07 each for a net profit on the Put side of $1950.

After commissions, this trade gave me a profit of $2580 for a return of slightly over 10% in about six weeks.

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On February 26, I decided to get back in to SLB with a new trade. I sold a May put spread at 85/80 for a net credit of $.52 for each spread. The trade behaved fairly well and I entered a GTC order for a .08 that filled on April 15. This gave me $.44 net profit. With another 40 spreads, this was a profit of about 10% or $1880 in about 50 days.

SLB_Trade_2

 

 

Estimating Returns on Insurance Agent Trades

As you search for the right Insurance Agent Trade, you will sometimes ask yourself something like the following question. “If I can get 46 cents for a 60-day Insurance Agent Trade, what is my monthly rate of return?” You can, of course, calculate that, but it can be a bit tedious to do it for several trades. And what if you ask a question, “I want to get 4% monthly for a 90-day trade. How much credit do I need?” Again that can be calculated, but asking the question backwards like that makes it more difficult.

So I made the following chart. For example, if you want a 90-day Insurance Agent Trade that is $5 wide and that makes you 4% per month, you will need to get 54 cents in net credit. If you get 46 cents net credit on a 60-day trade, that will give you a 5% monthly return rate.

What if you get 56 cents on a 72-day trade? That looks like about 5% if you read between the lines. You can calculate the return as follows:

Monthly Return = (net credit / ($5 – net credit)) x (30 / days till expiration)

Monthly Return = (.56 / (5.00 – .56)) x (30 / 72) = 5.3%

Refer to this chart when you are setting up your trades and it will help you quickly estimate the target credit and return rate for your trades. You might want to print it out and tape it to your monitor for easy reference.

 

TargetCredit