SURVIVING THE GAME
JANUARY 8, 2009
2009 – 2

I am also sending a position summary with the fills from the trades on Monday. The stops are also in the summary.

Move the stops on the DIA JAN 86/86 straddle from $800 to $600. The straddle is currently $404-410. Will tighten again as we get closer to expiry if not stopped out. Expiry is next Friday the 16th.

All other trades stay the same.

NEW TRADES:

I believe oil will go back up. When, I’m not sure. There is clearly a glut now with overcapacity and lack of demand. But, as with everything in this world, this to will change. So, to take a position with limited risk and maximum gain do the following trades. You are putting on butterfly option trades just like in Encana and the DIA MAR 90/100/110 position. Limited risk, high potential gains. The key is to get the timing and target price correct. You are using the USO, which is an ETF that tracks short term oil prices.

1) Buy 20 USO APR$ 35 calls, sell 40 $45 calls, buy 20 $55 calls. This will cost approx $160 per trade to initiate. Risk is $160 per trade, max potential gain is $840 per trade. You lose the entire $160 if MAY crude oil futures are below $45.00 at expiry. Max gain is at approx $57.

2) Buy 20 USO JUL $35 calls, sell 40 $45 calls, buy 20 $55 calls. This will cost approx $140 per trade. Risk is $140, max gain is $860 per trade. Same prices as above but based on the AUG crude futures contract.

3) Buy 20 USO JAN 2010 $40 calls, sell 40 $55 calls, buy 20 $70 calls. This will cost approx $160 per trade. Max risk is $170 but max gain is now $1340 each. Max loss occurs if FEB 2010 crude futures are below $51 and max gain occurs at approx $70 at expiry.

These are all extremely low risk/high reward trades. I encourage you to look at them closely. If crude does not move up at all, the value of these positions will deteriorate very slowly. You will exit at ½ premium paid on all these, risking ½ initial cost. This makes the risk on each position approx $80.

Options Guy
Editor
Surviving The Game
optionsguy@shaw.ca