Tuesday, June 7, 2011

Trade of the Day: Toyota Motors bearish July $80/$75 put spread

The Trade:
A trader bought the 3,000 July $80/$75 put spreads for a $1.20 debit.

The trader is making a short term bearish bet on TM. The max risk for the spread is limited to the debit. The max profit is also limited to the downside. The break even underlying stock level is $78.80. The spread profits below the break even price and is capped below the $75 level.

Toyota will announce the expected earnings forecast for the year on Friday at 3PM. Toyota closed trading today at $81.57. The trader is betting that TM will break the $80 support level before July expiration. It's interesting that the trade was executed on a day where Toyota gained $1.65, or 2.06%. The 52-week range for TM is a low of $67.56 and a high of $93.90.

The white line shown in the Toyota daily stock chart is the break even price level. Toyota traded 9,363 option contracts today compared to average daily volume of 5,886.

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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