MoundReport.com's Trade of
the Month
2004 Mini-S&P Synthetic
Bear Play
James Mound
JMTG's Head Analyst
Aug 31, 2004
Trade description:
Buy one Oct. mini-S&P 1100 put and sell one Oct. mini-S&P
1070 put. Also, sell one Oct. mini-S&P 1130 call and buy
one Oct. mini-S&P 1150 call for a total spread cost of approximately
$125. Margin is approx. $500 above the cost of the trade, but
can fluctuate based on price action, volatility and time. Options
expire on Oct. 15th, 2004. The mini-S&P does not allow option
spread orders, so a leg in is required, and it is recommended
to leg your JMTG broker to do the leg in for you. Also, larger
accounts can use the big board S&P with a five times multiple.
Explanation: After setting fresh lows the S&P has
experienced a retracement of about 50%. Heading into a trend
creating week involving the Republican convention, protests,
terrorism, escalating crude oil volatility and Friday's unemployment
report it is recommended to develop a position that benefits
from a value entry price to short the S&P. This trade design,
albeit fairly complicated, allows for a low cost bear put spread
by shifting the majority of risk to an out of the money credit
call spread.
Daily S&P Chart Courtesy of Gecko
Software's TracknTrade
Profit Scenarios:
Max profit is $1375 (assuming a $125 cost) and occurs at expiration
with the market below 1070. Profit is reduced by $50 per point
up to 1097.50, which is breakeven at expiration.
Risk Scenarios:
Max risk is $1125 and occurs at expiration with the market above
1150. Loss is reduced by $50 per point below 1150 to 1130 whereas
loss below 1130 would be the cost of the trade ($125) until the
market drops below 1100. Below 1100 loss is reduced by $50 per
point to 1197.50, which is breakeven at expiration.
Aug 30, 3004
 James Mound
info@Moundreport.com
JMTG's Head Analyst
PS: Does your broker give
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commission rates?
Maybe it's
time you called JMTG Brokerage, the home of the MoundReport,
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Call (1-888-744-8866) or email us (info@Moundreport.com) Today!
Disclaimer:
There is risk of loss in all commodities trading. Commissions
and fees vary per individual and therefore are not included in
profit, cost and risk scenarios. Please consult a James Mound
Trading Group Broker before you trade for the first time. Losses
can exceed your account size and/or margin requirements. Commodities
trading can be extremely risky and is not for everyone. Some
option strategies have unlimited risk. Educate yourself on the
risks and rewards of such investing prior to trading. James Mound
Trading Group, or anyone associated with JMTG or moundreport.com,
do not guarantee profits or pre-determined loss points, and are
not held monetarily responsible for the trading losses of others
(clients or otherwise). Past results are by no means indicative
of potential future returns.
321gold
Inc
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