Trade Idea #5

This trade assumes that the underlying stock will NOT move down more than 42% in the next month.  If these trades are done together (as I am illustrating) it is an INCREASED risk position.  This is a Bull Put Spread (Credit Spread)

Position:

Buy QIUUA September 5 Put for          $0.35

Sell QIUUU September 7.5 Put for      $1.20

Net                                                                    $0.85

Break even for this position is OSIR trades for $6.65 ($7.50 – $0.85) on expiration.  Today OSIR is trading for $11.75.  This would be a decline of $5.10 in the next month, or 43%.  Possible, but not likely.

Maximum Loss would be $1.65/share (+ trading costs) OSIR – $5.00 or less.

Maximum Gain would be $0.85/share (- trading costs) OSIR – $7.50 or higher. 

Assuming $.15/share trading costs the gain would be $0.70 ($0.85- $.15) for a return of 28% ($0.70/$2.50) in one month, or 336% APR.

Trade Summary

This vertical spread trade was entered on January 17th.

SRS traded at $19.40 at the close on Friday July 17th.  Both Call options, the one bought (long) and the one sold (written), expired worthless.

We have realized our maximum loss of $3.50 (+ trading costs) or $7.80 (+ trading costs), depending on the strike prices chosen.  Our loss represents a 100% loss of the money at risk.

NOTE:  I am including this trade as a 100% loss, HOWEVER, SRS traded upto $111.22 on March 6th.  The low beteween these dates was $48.00.  IF we had placed a trailing stop order (to be explained in another post) we could have avoided this loss AND this trade would have been a WINNER of probably 75% OR BETTER.  I did not include these instructions in this trade, because I have not explained what a trailing stop is.  I would have had a trailing stop of 20% on the price of SRS (it would have been this large because of the volatility of SRS), which means that we would have exited this position when SRS was trading aroung $88.50-$89.00.

Trade Summary

This vertical spread trade was started on March 23, 2009.

SLV traded for $13.17 at the close on Friday July 17th.  Both Puts, the one sold (written) and the one bought (long), expired worthless.

We realized the maximum gain for this trade of $0.40 (less trading costs), if we assume $0.15/share as trading costs, we have a gain of $0.25/share.  We risked $0.75/share, which makes our return on this trade 33% (0.25/0.75) for four months or approximately 100% APR.

Please note that $0.15/share trading costs assumes that only one option contract was used.  These costs go down (dramatically) if more than one option contract is used which would raise the return of this trade.

Trade Summary

GGB Closed on Friday June 19th at $10.18.

We started this trade on January 27th

We had an update here, here,  here and here.

The call that we sold has been exercised, the call the we held long was used to cover the trade.  We had a gain of $1.10 on an initial capital requirement of $4.20, including all trading costs.  This represents a 5 month gain of 26% ($1.10/$4.20) or almost 63% APR.

Trade Idea

Here is a Bull Put Spread (Linn Energy:LINE) a Credit Spread:

Sell October 2009 $20 Put on LINE (QGJVD) for     $2.05

Buy October 2009 $17.50 Put on LINE for                 $0.95

Net                         +$1.10 (less trading costs)

Max. Gain               $1.10 (less trading costs)

Max. Loss               $1.40 (+ trading costs)

Linn Energy is trading for $19.66 at the close of trading today June 15, 2009.

If Linn Energy is trading for $20.00 or more on October 17, 2009 both puts will expire worthless, we get to keep the $1.10 (less trading costs) premium.  If Linn Energy is trading for less than $17.50 we will suffer the maximum loss.  In between $17.50 and $20.00 we will have to make a calculation for the gain or loss.  I feel this is a great trade because Linn Energy is paying a +12% dividend and their earnings should be very solid as they have hedged their product for the next three years, at favorable prices.  I do not believe that Linn Energy will decline from here.

We are risking $1.40 (+ trading costs) and the return that I am looking for is about 78% in 4 months or 235% APR.