Trade Update

I’m still in this trade and will make a decision tomorrow, Thursday October 15, 2008 as to whether or not to continue holding this position or close it. My decision will be based on Citi’s earnings report which I expect to exceed market expectations. If yes, the stock will move up after which I may close out the trade, and perhaps roll it up. If the earnings disappoint, the stock will most likely go down to the low $4 level and I may decide to hold. As of the closing today, 9/14/08, the position has a value of $2.50 which represents a gain of $2.37 per share, or 1,800% in a little less than 3 month. You calculate the p.a. gain J . I will leave it up to you to guess how much I invested in this trade. In hindsight, I should have gone in very big, but didn’t.  L  But good enough. This was just a test of a new strategy that I’m planning to explore further. Stay tuned.

Just a quick update: Citi stock moved up almost 0.50 today, increasing my trade spread to about $2.00. This from an initial investment of $0.13 ... I got to do that more often. :--))

Update of My Trade

The trade spread (of the trade below) today is about $1.60 a 1000%+ gain in less than a month .... pretty good, no?

My trades

Here is a trade that worked out for me quite well, so far. It took me a while to construct it and convince myself that the risk was manageable and the potential reward far exceeded any potential downside. I wrote the trade out to myself in detail and booked it on Monday, July 27, 2009.

Details:

I entered this trade on 7/25 after I convinced myself with the analysis below that there is a controllable risk ... (I sent this to another options trader after close on 7/24)

Quote:

Citigroup ( C ) closed at $2.73 on 7/24/09: ... you are bullish on the stock and believe it will go up over the next 18 month.

So, you could either buy the stock outright OR you can use options (at a $2.50 strike price) to create a synthetic long stock position ...

Here is how:

Sell January 2011 $2.50 Puts (symbol: VRNMY) currently priced at $0.76 (you will take in 0.76 per share in premium)

Buy January 2011 $2.50 Calls (symbol: VRNAY), currently priced at 0.89 (you will pay out 0.89 per share in premium) ... for a net debit of approx $0.13 per share ... (the reason this does not zero out is because the current stock price is higher than the $2.50 strike, so you already have an intrinsic value of 0.23 in the call ) ...


Risk: the maximum loss is if the stock goes to zero ... you will lose 2.63 ($2.50 plus 0.13) times the number of shares you buy .... the risk is the same as if you bought the stock outright ... (you could use stops to control the downside) ... (if the stock closes below 2.50 at expiration, your loss is 2.63 less the closing price below 2.50, e.g., if it closes at 2.00, your loss will be 0.63 cents per share)

Upside: you gain cent per cent of whatever the stock closes above 2.63 (2.50 strike plus your "investment" of 0.13) at expiration on Jan 21, 2011 ... so, if you think the stock will close at $10 in about 18 months, your gain would be $10 - $2.63, or $7.37 per share on an investment of $0.13 (quite a respectable % return, no?)

Unquote