Portfolio Strategy for May 1

Teresa, April 30, 2008 @ 10:36PM ET | Link | RSS | Read via Email | Start a Discussion  

This article is exclusive to subscribers. Did you know that a subscription to Portfolio Strategy, which includes InVivo.RMI trading tools, costs only 53 cents per day?

Podcast for Tuesday: Option Spreads

Pete, April 29, 2008 @ 8:00PM ET | Link | RSS | Read via Email | 9 Comments  

In today’s podcast [DOWNLOAD MP3 FILE] we demonstrated how to swing trade with bull call spreads and bear put spreads to manage risk and increase returns.

Bull Call Spread: COF

We set up a bull call spread using Capital One Financial as a study case.

cof.gif

Strike Symbol Last Chg Bid Ask Vol Open Int
25 COFFE.X 27.1 0 27.8 28.9 10 841
30 COFFF.X 20 0 22.9 23.9 30 359
35 COFFG.X 19.5 0 18 19 20 1,224
40 COFFH.X 13.8 Up 4.20 13.7 14.3 550 1,855
45 COFFI.X 10.3 0 9.6 9.8 2 3,068
50 COFFJ.X 5.6 Down 0.60 5.7 5.9 59 18,026
55 COFFK.X 2.85 Down 0.25 2.85 2.95 406 8,929
60 COFFL.X 1.05 Down 0.15 1.1 1.2 448 9,286
65 COFFM.X 0.25 Down 0.10 0.25 0.4 35 5,754
70 COFFN.X 0.15 Up 0.05 0.05 0.15 10 2,596
75 COFFO.X 0.05 0 N/A 0.1 27 1,579
80 COFFP.X 0.05 0 N/A 0.05 2 1,151
85 COFFQ.X 0.05 0 N/A 0.05 0 854

COF, last at $53.67
Stop Loss at $43.95

Sell 1 June 55 Call @ $2.85 = $2.85 x 100 = $285.00 CREDIT
Buy 1 June 45 Call @ $9.80 = $9.80 x 100 = $980.00 DEBIT

Net Debit = $695.00 PER CALL
Max Profit = $55 - $45 = $10 x 100 = $1000 - $695 = $305/$695 = 43.88%

Bear Put Spread: POT

We set up a bear put spread using Potash Corp Saskatchewan as a study case.

pot.gif

Strike Symbol Last Chg Bid Ask Vol Open Int
65 PVZRM.X 0.05 0 N/A 0.15 20 432
70 PVZRN.X 0.1 0 N/A 0.15 19 131
75 PVZRO.X 0.05 0 N/A 0.15 26 295
80 PVZRP.X 0.15 0 N/A 0.15 1 183
85 PYPRQ.X 0.15 0 N/A 0.1 105 968
90 PYPRR.X 0.25 0 N/A 0.1 1 482
95 PYPRS.X 0.05 0 N/A 0.2 10 183
100 PYPRT.X 0.1 0 N/A 0.15 4 834
105 PYPRA.X 0.35 0 N/A 0.35 1,011 2,161
110 PYPRB.X 0.2 0 0.2 0.3 2 2,113
115 PYPRC.X 0.2 0 0.2 0.45 3 1,027
120 PYPRD.X 0.45 Up 0.10 0.4 0.65 9 1,078
125 PYPRE.X 0.55 0 0.65 0.8 80 3,280
130 PYPRF.X 1.1 Up 0.55 1 1.15 49 5,274
135 PYPRG.X 1.55 Up 0.50 1.45 1.7 102 1,601
140 PYPRH.X 2.35 Up 0.80 2 2.3 108 5,196
145 PYPRI.X 3 Up 0.95 2.85 3.1 235 1,959
150 PYPRJ.X 3.9 Up 1.30 3.7 4 587 3,004
155 PYPRK.X 5.09 Up 1.59 4.8 5.1 213 2,852
160 PYPRL.X 6.4 Up 1.70 6.2 6.5 185 1,254
165 PYPRM.X 8.28 Up 2.28 7.8 8 185 1,445
170 PYPRN.X 10 Up 2.30 9.6 9.9 237 2,128
175 PYPRO.X 12 Up 2.60 11.7 12 527 993
180 PYPRP.X 14.1 Up 2.90 14 14.3 316 1,476
185 PYPRU.X 17.2 Up 3.70 16.6 16.9 463 1,241
190 PYPRV.X 19.4 Up 3.58 19.4 19.7 258 924
195 PYPRW.X 22.7 Up 4.10 22.4 22.8 87 709
200 PYPRX.X 25.9 Up 4.58 25.7 26.1 109 1,494
210 PJNRB.X 32.7 Up 6.10 32.7 33.2 44 1,459
220 PJNRD.X 41.6 Up 9.00 40.5 41 27 763
230 PJNRF.X 42.09 0 48.7 49.3 2 161
240 PJNRH.X 54.6 Up 3.13 57.5 58 1 97
250 PJNRJ.X 64.1 Up 8.21 66.5 67.2 3 92
260 PJNRL.X 68.1 0 75.7 77.7 20 69
270 PJNRN.X 66.7 0 84.8 87.1 10 90
280 PJNRP.X 75.8 0 94.5 96.9 10 30
290 PJNRR.X 88.1 0 104.3 106.7 10 20
300 PJNRT.X 111.5 Up 14.90 114.2 116.6 29 20
310 PJNRU.X 113.1 0 124.3 126.6 10 10
320 PJNRV.X 131.8 Up 9.30 134.3 136.6 4 10

POT, last at $182.50
Stop Loss not known, use April 23, 2008 swing high = $215.97

Sell 1 June 180 PUT @ $14.00 = $14.00 x 100 = $1400.00 CREDIT
Buy 1 June 210 PUT @ $33.20 = $33.20 x 100 = $3320.00 DEBIT

Net Debit = $1920.00 PER PUT
Max Profit = $210 - $180 = $30 x 100 = $3000 - $1920 = $1080/$1920 = 56.25%

Charts of the Day

The following charts were mentioned in today’s podcast. As usual, we applied InVivo.RMI indicators (available as a bonus to Portfolio Strategy subscribers) to the daily chart along with the widely-watched 50- and 200-day moving averages. The pink/cyan dots provide potential entry/exit signals while the price bars are colored red/yellow/green to identify relative performance.

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