Stock / Symbol: [private_monthly]iShares FTSE China 25 Index Fund / FXI[/private_monthly]
Price at trade post: $41.40
Option Strategy: bear call spread
Max Risk: $660 (at Mar expiration)
Max Reward: $140 or 21.2%
Profit Range: $0 - $43.35 (at Mar expiration)
Reasoning: We have done extensive research on the Chinese market, and we are convinced that tightening inflation, along with hyper-growth in recent years is setting up for a hard landing. With that, we are going short the Chinese stock market, specifically the [private_monthly]FXI, which is iShares TSE China 25 index Fund[/private_monthly]. While we haven’t caught the initial downward move in the etf, we believe the price per share will continue to fall. The strategy we're using here, a bear call spread, takes full advantage of the fact that 77% of all options expire worthless. That, coupled with a break even 4.5% higher than the current price, gives us some pretty darn good odds that this will be a profitable trade.
Trade Details:[private_monthly]
Sell -4 FXI Mar11 43 Calls @ $0.50 for ($208.00)
Buy 4 FXI Mar11 45 Call @ $0.15 for $60.00
for a net credit of $0.35 per contract
Requirements:
Cost/Proceeds: ($140.00)
Option Requirement: $800.00
Total Requirements: $660.00
Estimated Commission $12.95
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Chart:[private_monthly]
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