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Looks good, but the issues I see:
1) can you really get the ASK on the short call ($1.05) ?
Sometimes options executions are less than favorable. Likewise for the
LEAP...can you really get the bid ?
Why not re-profile this trade with $0.95 for the short call and $3.80 for
the LEAP ?
2) won't the margin requirements for this be high if the broker does not
allow the LEAP to act as a long stock position would ?
> -----Original Message-----
> From: Raymond Raffurty [mailto:r.raffurty@xxxxxxxx]
> Sent: Wednesday, February 11, 2004 6:41 PM
> To: realtraders@xxxxxxxxxxxxxxx
> Subject: [RT] Calendar Spreads
>
> Hi Rt's,
>
> 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
> << File: BMY1.gif >> << File: BMY2.gif >>
>
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