OT* on COP, an option strategy using leaps:
COP closed $58.20 – a bullish option strategy using LEAPS
First strategy:
10 Calls by 10 Puts Jan 2008 (10 options is equal to 1,000 shares)
Buy 10 Calls Jan 2008 at $15.70 = $15,700
Sell 10 Puts Jan 2008 at $9.30 = $9,300
Net debit $6,400 (cash outlay to take position)
P&L at various prices:
@50 = $16,400 loss
@60 = $3,600 profit
@75 = $18,600 profit
@100 = $43,600 profit
Second strategy (delta neutral):
10 Calls by 15 Puts Jan 2008 (10 options is equal to 1,000 shares)
Buy 10 Calls Jan 2008 at $15.70 = $15,700
Sell 15 Puts Jan 2008 at $9.30 = $13,950
Net debit $1,750 (cash outlay to take position)
P&L at various prices:
@50 = $16,750 loss
@60 = $8,250 profit
@75 = $23,250 profit
@100 = $48,250 profit
In addition to the net cash out that must be covered there will also be a margining requirement on the naked put. Most firms will do something like 30% of the value at the strike plus or minus the in-the-money or out-of-the-money.
Eg. A put at 60 with the stock at 58 would require margin of 30% of $60K or $18,000 plus in the money of $2,000. Total margin $20,000.
* I wrote this for another board yesterday and thought some might find it interesting. COP is being push down by the hedging of the BR buyout. The leverage in this trade offers biotech-like potential. :-) |
