BHP Bear Call Spread
Sell 5 BHP Feb 09 3200 Calls @ 96
Buy 5 BHP Feb 09 3300 Calls @ 68
Net Credit = 28 cents
This trade requires margin requirements.
The ideal result is for the share price to stay below the lower strike price of $32.00.
Max Profit = Net premium received
= 96 -68
= 0.28 x 5 contracts
This will occur if the share price is above the bought call option at expiry
Max Loss = Total spread less Net Premium Paid
= 0.72 * 5 contracts
Lower strike plus net premium received
Breakeven = 32.00 + 0.28
Risk vs. Reward
Risk 28 cents to make 72 cents profit.
Risk vs. Reward = 1: 0.3889
Main Benefits of Strategy
- Provides leveraged exposure to a fall in the share price
- Takes advantage of time decay
- The ideal result is for the options to expire worthless, which means the client will save on brokerage not having to close the position to take a profit.
- Trade is above resistance
- Share Price is below short-term moving averages
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