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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.

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.

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.