Bull Call Spread: Past Recommendation

Posted on March 1st, 2010 admin No Comments

Below is a past recommendation on Oxiana which is now known as Oz Minerals (OZL). This Bull Call Spread demonstrates how the strategy works in real life.

OXR Bull Call Spread

Trade:

Bull Call Spread

Buy 12 OXR Feb 325 Calls @ 17

Sell 12 OXR Feb 350 Calls @ 9

Net Debit = 8 cents

This trade requires no margin requirements.

Maximum Profit

The ideal result is for both the share price to be above $3.50 at 28th February.

= Spread minus cost

= 0.25-0.08

= 0.17

On 12 contracts this is a return of $2040, which is 212.5% return.

Maximum Loss

This is the cost of placing the trade which is $0.08 which on 12 contracts is $960.

Breakeven

The breaks even at expiry is $3.25+$0.08 = $3.33.

Risk vs. Reward

Risk = 8 cents Reward = 17 cents

Risk vs. Reward = 1:2.125

Fundamental View

The fundamental analysis below outlines that OXR at the time of the recommendation was sound fundamentally.

OXR’s diversified asset base provides excellent exposure to buoyant copper, zinc and gold prices. The company’s medium and long-term production profile is very strong, with the Prominent Hill copper/gold project in South Australia, the Sepon Copper expansion in Laos and the Matarbe gold project in Indonesia expected to translate to significant production growth in 2009 and beyond. An expansion at Golden Grove in Western Australia is also likely to occur that should translate to a significant extension of that project’s operational life. (Source StoneBridge Research)

Technical Analysis

The below is the analysis on the OXR chart when this recommendation was made.

OXR is oversold and today the share price looks to be heading back up towards resistance at $3.60. The momentum indicators are crossing over indicating a buy signal. This means OXR has been oversold and the current share price increase indicates a change in trend. Below is a chart of Oxiana.

Chart


To receive ASX Option Recommendations or to learn more about Bull Call Spread, Bull Put Spread, Bear Call Spread, Bear Put Spread Strategies please request the Option Spreads eBook by contacting us on 1300 368 316 or info@totaloptions.com.au