Thursday, June 16, 2011

Trade of the Day: January 2013 $20/$10 bull risk reversal

The Trade:
A trader set up the January 2013 $20/$10 bull risk reversal 10,000x at $0.23.

The trader is making a large bullish bet that Cisco is nearing a bottom. The trade has unlimited risk to zero and unlimited profit potential. The trader decided to use the January 2013 options, and therefore, has lots of time to adjust to the position if needed. Using the $20 and $10 strike prices, the trader is willing to be long 1M shares at $9.77 cost basis. Cisco hasn't traded below $10 since 2002, making this trade relatively low risk.

The white line shown is the strike price of the long call. You can see that Cisco is nearing very strong support levels, $14 being the strongest. Cisco closed trading today at $15.05. The 52-week range for Cisco is a low of $14.78 and a high of $26. Cisco traded 159,312 option contracts compared to average daily volume of 208,098.

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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