Paul Cretien breaks down the options price curve of four metal futures. ...
Profit from a New S&P High with This Option Trade
11/10/2009 12:01 am EST
This bull call spread offers a potential return on risk of 460% if the index breaks above 550 in the next three months.
Investors choosing to trade this strategy don’t need the OEX to go all the way to 560 to capture significant profits in this spread since its value will increase considerably as the market rallies toward levels not seen since the financial crisis accelerated in September 2008.
OEX Debit Spread Trade Detail
The OEX is currently trading at 502.40 at the time of this article.
Debit Spread/Bull Call Spread
- Buy the February 540 call (out-of-the-money) for $5.80 per contract
- Sell the February 560 call (out-of-the-money) for $2.25 per contract
- Net debit of $3.55 (or $355 per spread)
Maximum Risk: $3.55 (the debit paid at the time of the trade) plus commissions.
Maximum Potential Profit: $16.45 (the difference between strike prices—20—minus the debit of $3.55). Return on risk is approximately 463%.
Break Even: 543.55 (the strike price of the purchased call plus the debit paid).
Remember, trading Ideas are shown as a starting point for people to begin their own research. Trading ideas are not intended as trading or investment advice or recommendations that any particular security or strategy may be suitable for any specific person. You are solely responsible for your investment decisions, but we hope that some of these ideas will give you a starting point as you look for strategies to employ.
By the Staff at ONN.tv
Related Articles on OPTIONS
Last week Paul Cretien introduced the log log Parabola (LLP) Options Pricing Model. Here we explain ...
The Log-Log Parabola (LLP) Options Pricing Model show variances in options pricing that can produce ...
Jay Soloff, who is presenting at MoneyShow Orlando Feb. 7-8, describes a no-cost collar strategy and...