|
PureBytes Links
Trading Reference Links
|
I have recently been exploring calendar spreads using stocks other than the
QQQ (and similar vehicles). In case someone does not know a calendar spread
is buying a distant expiration call (or put) option, often a LEAP, and
selling a closer expiration call (or put) at the same strike or higher for
calls (lower for puts). The idea is that the LEAP acts as a low cost
substitute for owning the underlying stock, while the short option generates
cash.
I started by looking for stocks with low cost Jan. '06 LEAPS and relative
high calls expiring in Sept '04. One that immediately popped up is
Bristol-Myers Squibb (BMY) currently trading at $30.05 per share. The BMY
Jan '06 30 Call (WBMAF) is bid at $3.70 or $370.00 per contract. The BMY
SEP 2004 32.5 Call (BMYIZ) ask is $1.05 or $105.00 per contract. This means
that if one where to buy 1 WBMAF and sell 1 BMYIZ the net cost would be $370
- 105 = $265.00 per contract.
As you can see from the attached chart this produces a very favorable
risk/reward profile. Trading 5 contracts of each call the maximum loss
would be $1325.00 while the maximum profit would be $2195.00 and the
position would be profitable any ware with BMY trading between $24.32 and
$59.18.
Comments anyone?
Good luck and good trading,
Ray Raffurty
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/realtraders/
<*> To unsubscribe from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
<<attachment: winmail.dat>>
|