This trade was posted January 27, 2009.

Diagonal Spread Example:

Sell GGBBU            Feb 2009    7.5 Call            $0.35

Buy KDMAZ            Jan 2010   2.5 Call             $4.40

 

Net Cost                      $4.05(+Trading Costs)

 

Maximum Loss            $4.05(+Trading Costs)

 

GGB is trading for        $6.54 at the close on Tuesday 01/27/09

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GGB is now trading for $4.85 on Tuesday 03/17/09.

Sell GGBDA          April 2009     $5 Call          $0.40

The KDMAZ (Jan 2010 2.5 Call) is now trading for $2.65.

 

Net Cost                       $3.65(+Trading Costs)

 

Maximum Loss is now   $3.65(+Trading Costs)

 

If this option is exercised we will have a loss of $1.15 (+ Trading Costs) on this Trade Idea, if this option expires we will look at the next trade.  For this trade, we have had the worst scenario for a Diagonal Spread, which is the underlying stock (GBB) has declined dramatically (almost 26%).  If GGB stays below, but near, $5 we should be able to salvage this trade, provided it’s fall does not continue.

————————————————————————————————————————– GGB is now trading for $5.06 on Friday 03/20/09

 

Buy the GGBDA         April 2009        $5 Call                 $0.10

 

Maximum Loss is now     $3.75 (+Trading Costs)

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GGB is now trading for $6.88 at the close on Wednesday 04/22/09

 

Sell the GGBFU           June 2009         $7.50 Call            $0.45

 

Maximum Loss is now     $3.30 (+Trading Costs)

If this option is exercised we will have a gain of $1.70 ($7.50 Call sold exercise – $2.50 Call bought exercise – $4.40 Call cost + $0.35 Call sold expired + $0.40 Call sold – $0.10 Call bought back + $0.45 Call sold that was exercised).  This would produce a return of 42% ($1.70/$4.05) in 6 months not including trading costs.  Assuming $0.15/trade/per share (which is conservative), 4 trades = $0.60 trading costs, the return is $1.10 or 26% in 6 months.  We are still hoping that GGB does not trade above $7.50, yet and, we will be able to sell more options from now until January.

 

 

 

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