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Non-Tech : Paired Trades and Hedging Strategies
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From: IRWIN JAMES FRANKEL7/9/2008 8:51:49 PM
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This is an option strategy using LEAPS similar to one I did on COP in the 50's. It prints money if the stock moves up and eats your lunch if the stock goes down.

Here is a bull lever for nutcase investors considering current price of TSO:

TSO bull option lever using Jan 2010 options, a cash neutral play, ignores commissions.

X = number of options in each leg*

Sell 1.5X 17.5P @ 5.00 = $7.50 (cash in)

Buy 1X 12.50C @ 7.50 = -7.50 (cash out)

Net cash effect $0.00

Est Margin for naked puts $7,200

BEP ~$15.50

Any significant move up should print money. Remember some guy offered to buy TSO for $63 (if memory serves me).

* Since I used a fraction you could not simply do 1 call. But it works on 2 calls and 3 puts, or 10 calls and 15 puts ...
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