Tuesday, August 23, 2011

Trade of the Day: Gold (GLD) January $150/June $225 Bull Risk Reversal

The Trade
Trader sold January $150 puts at $2.35 and bought June $225 calls at $6.95 15,000x for a $4.60 debit, $6,900,000 total. Maximum risk is $231,900,000. Profit potential is unlimited.

Chart above graphs profit and loss profile for the trade. Trade is highly bullish and benefits from rise in volatility. Blue line below highlights break even at $187.49.

Alternative trade would the January $145/$150 bull put spread, buying $145 and selling $150, with the June $225/$240/$255 call butterfly. $1.05 debit for butterfly and $.60 credit for put spread, $.45 total debit. Position limits downside risk, while retaining bullish bias with a superior risk-to-reward ratio.


Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!

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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