Thursday, June 2, 2011

Trade of the Day: Goldman Sachs Sell January '12 $110/$100 put spreads to buy $170 calls

The trade:
A trader sold the 2,500 January 2012 $110/$100 put spreads to buy 2,500 January 2012 $170 calls for even money.

The trader is making a large bullish bet that GS is near the its lows and will rally to end 2011. GS dropped 1.31% today and closed trading at $134.38. The trader possibly sees the $130 level as support. The 52-week range for GS is a low of $129.50 and a high of $175.34. The spread's max risk is limited at an underlying stock price of $100 and lower before expiration. The spread's max profit potential is unlimited. The spread will not start to lose any money until the underlying drops below $110, a level Goldman hasn't traded at since 2009.

The white line shown on the daily chart is the strike price of the long call. As you can see, the $130 level should be a very strong resistance level for GS to break. Therefore, the trader placed his bet. GS traded 136,170 contracts today compared to average daily volume of 50,503.

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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