Friday, May 13, 2011

Trade of the Day: Ralph Lauren $135/$125 June ratio put spread 1,000x2,000

The Trade: 
A trader put on the June 1x2 $135/$125 ratio put spread for a $1.40 debit, 1,000x2,000.

As you can see from the graph above, the spread profits the most from a decrease in the underlying stock before June expiration. The max profit occurs at an underlying stock price of $125 at expiration. RL closed today at $133.31. The break even point is $$133.30. The spread has unlimited risk to zero because of being short more puts than long.

The chart shown above is the Ralph Lauren daily stock chart. The white line is the break even price level. RL traded 5,809 contracts compared to daily average volume of 1,889. It's interesting to note that a large June $140/$150 call spread also traded 1,000x500 today.

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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