Bull Put Spread Recommendation: Suncorp-Metway (SUN)

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This trade is a bull put spread trade on SUN. This trade is for the short-term option traders not wanting to purchase the SUN shares but profit from the time decay of the sold puts. This trade is set up to receive maximum profit if SUN is above $8.82 at February expiry. This trade should profit from Suncorp strengthening into the ex-dividend date and this trade will expiry before the ex-dividend date in 2010.

Trade

  • Sell 25 contracts SUN February $8.82 Put Options @ 15 cents
  • Buy 25 contracts SUN February $8.57 Puts Options @ 8.5 cents

Shares per contract = 1020

Net Credit 7.5 cents

Trade Summary

Maximum Profit = $1,912.50

Maximum Loss = $4462.50

Breakeven = $8.745

Return on Risk = 42.86%

Dividend

Suncorp is announcing their First Half Profit Announcement on the 24th February 2010. On this day they will confirm the Dividend amount and when SUN will go ex-dividend. Without knowing with certainty the dividend amount and the date we can use last year’s details as an approximation. Last year SUN went exercise 27th February for 20 cents. If this is relatively accurate this tells us that our position will expire before the ex-dividend date. 20 cents dividend is also a 2.2% yield which makes it highly attractive and should keep SUN strong until after the ex-dividend date.

Chart

Daily Chart:

  • Short-term uptrend
  • Buy on Stochastic

Weekly Chart:

• SUN is in a medium term uptrend and still a buy on the stochastic.


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

What is an option?

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An option is an agreement, or a contract, between two people: the buyer and the seller. There are two types of options: calls and puts. A call option is the right to buy and a put option is the right to sell a specific item (the underlying asset), at a specific price (the strike price), for a specific time (until expiration).You must pay an option premium when buying an option. However, when you sell an option you receive this premium.

Bought Calls

After you have paid the option premium you then have the right, as a call owner, to buy the underlying shares by paying the strike price. However, there is no obligation to do so. If the bought call owner does choose to exercise this right, then they are said to have exercised the option.

Bought Puts

After you have paid the option premium you then have the right, as a put owner, to sell the underlying shares by receiving the strike price. Again, there is no obligation to do so. If the bought put owner does choose to exercise this right, then they are said to have exercised the option.

Sold Calls

A call seller will initially receive the option premium, however has no control over when, or if, the call owner exercises the option. If the call owner exercises the option the call seller is obligated to sell the underlying shares at the strike price and is said to have been exercised.

Sold Puts

A put seller will initially receive the option premium, however has no control over when, or if, the put owner exercises the option. If the put owner exercises the option the put seller is obligated to buy the underlying asset at the strike price and is said to have been exercised.


To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au