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Friday, January 20, 2012

February RUT Bear Put Spread

SELL 5 RUT February 830 Put (@50.60)
BUY 5 RUT February 835 Put (@54.80)

Debit: $4.20 (4.20 * 100 * 5 = $2100)
Max Return: $400

Break-even point(s): 830.80 (Currently around 782, the RUT index would need to go up to around 830.80 to cause a loss)
Probability of success: 81.32%
Days to expiration: 28
Max return on Investment: 19.05%
Commissions: $15.00 (Assuming Interactive Brokers' schema for Canadians)

(Click on Image to enlarge)

RUT in overbought territory.
This trade is similar to opening a Call Credit Spread selling the 830 Call and buying the 835 Call. Creates a similar profit curve. However the Put Spread was yielding a little more profit while reducing the maximum risk. There was also a nice volatility skew in the 830 and 835 Puts to take advantage of. With the strength of the market and judging by what it did last year (Unstoppable from December to March), I probably wont hold this until expiration.

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Related articles:
Weekend Thoughts (January 21, 2012)
February RUT Bear Put Spread Closed.

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