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).
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By the Staff at ONN.tv