Wednesday, May 11, 2011

Trade of the Day: EnCana October $34/$27 bull risk reversal 10,000x

The Trade
A trader put on the October $34/$27 risk reversal for 10,000 contracts at a $0.90 debit.

The trader is making a large bullish bet on EnCana Corporation. The trader will profit if the underlying stock is above $34.90 by October expiration. The risk reversal has unlimited risk to zero but has unlimited profit potential to the upside. The trader decided to sell the October $27 puts to partially finance the purchase of the $24 calls. EnCana closed today at $32.59.

The line shown is the break even price. Looking at the daily stock chart, you can see that the stock has not consistently traded above that level. The bullish trader probably noticed that the stock has pulled back to the 100 day EMA and prior support.

The 52-week range is a low of $26.02 and a high of $35.25.

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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