New Trade – ratio put spread

Stock / Symbol: [private_monthly]ProShares Ultra S&P500 ETF / SSO[/private_monthly]
Price at time of post: $42.48

Option Strategy: ratio put spread
Max Risk: $3,689
Max Reward: $311 (at Dec expiration)
Profit Range: $33.89 +
Max Profit at: $37

Reasoning: We want to add another position to the portfolio that benefits in the event the market pulls back. The beauty of this trade is that it generates a credit, nearly enough to cover the commission for the trade. Therefore, if the market continues higher, we're only out less than two dollars. IMPORTANT: we are financing this trade by selling 2 puts against the 1 that we are buying. Therefore, if we keep this position open through December expiration & if [private_monthly]SSO[/private_monthly] closes at or under $37 on December 17th, we'll be obligated to purchase 100 shares of [private_monthly]SSO[/private_monthly] at $37 per share. However, it is highly unlikely that we'd hold this position through expiration if this stock is trading under $37; and even if we do hold onto this position through expiration, we'd be happy to own [private_monthly]SSO[/private_monthly] at $37.

Trade Details:[private_monthly]

Buy 1 SSO Dec10 40 Put @ $1.49 $149.00
Sell -2 SSO Dec10 37 Put @ $0.80 ($160.00)

Cost/Proceeds: ($11.00) Net Credit
Option Requirement: $3,700.00
Total Requirements: $3,689.00
Estimated Commission: $12.95




Non-members, click here for access

Speak Your Mind