BTO Jan10 (74dys) 120 Put@5.75 (may be changed when filled)
STO Nov09 (18dys) 120 Put@2.64 (may be changed when filled)
Net Debit / Cost Basis / Max Risk 3.02
Max Gain : around 206/302 = 68% in 18 days;
To achieve 20% Gain:
- 116.8(3.1% drop) < Stk range < 123.3 (2.3% rise)
BE right limit : 125.15 PE : Hold till Nov09 exp in 18dys
BE left limit : 115.25 SE : if stk to $124, roll up SC to OTM Dec09
Success Prob (according to TOS) : 44.9%
if stk to $116, roll down SC to OTM Dec09 & add DITM LP for neccessary period
Posts
Albert,
ReplyDeleteI think it is good trade. It is high probability that IBM will pin between 115 and 125.
I am fundamentally very bullish on IBM. But its long term appreciation is being dragged down by the market. If there is a short term reversal, the SPX could still go to 1100. IBM will easily go pass 125.
If I were to place the trade, I prefer a call diagonal calendar - more bullish bias or even a double diagonal at 115/130 may also work.
More comments:
ReplyDeleteTo make it a bullish play because of the strong fundamentals of IBM, if stock end up ITM at expiration, I will make it into a married put and immediately convert into a collar after getting the stock by selling a call.
To do that, you need to ensure you have enough money in your account.
I do not like DITM put for protection because it can go both ways. If the stock whipsaw, you will lose money fast too although you get more protection when the stock goes down. Yes, you have less extrinsic value if you sell the LP later. But there is a good probability of IBM going back up. So I will not use a DITM LP for protection. Use it only when you are really bearish
Good trade idea. Just not clear on your SE.
ReplyDelete