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Strategies & Market Trends : Tech Stock Options
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To: ViperChick Secret Agent 006.9 who wrote (33996)1/24/1998 8:16:00 PM
From: MonsieurGonzo  Read Replies (2) of 58727
 
Lisa; RE:" Call Ratio BackSpread "

UNDERLYING: CAT LAST: 45-1/2 DIV.YIELD = 2.2% P/E = ~10

DJIA-30 component; Supports: 45, 40 +/- 1-1/2; Morning Star 20-JAN;
Just beat FirstCall Earnings; PEG reduced because of Asia.

TACTIC: Diagonalized Call Ratio BackSpread

EXECUTION: Sell 1 CATBH FEB 40 CALL @ 5-1/2 (5-1/2 x 6 ASK)
Buy 2 CATEJ MAY 50 CALL @ 1-7/8 (1-5/8 x 1-7/8 ASK)

+ $550 credit for 1 CATBH FEB 40
- $375 debit for 2 CATEJ MAY 50
----------------------------------
+ $175 net credit of position {delta neutral}

CHARACTERISTICS:

Profit limited on downside (to net credit taken in
when position is taken) but, open-ended in rally.

CAT Price At Profit On Profit On
FEB Expiration 1 CATBH 40C 2 CATEJ 50C PROFIT
-------------- ----------- ----------- ------

35 + 550 - 375 + 175
36 + 550 - 375 + 175
37 + 550 - 375 + 175
38 + 550 - 375 + 175
39 + 550 - 375 + 175
40 + 550 - 375 + 175
41 + 450 - 375 + 75
> 42 + 350 - 375 - 25
43 + 250 - 375 - 125
44 + 150 - 375 - 225
< 45 + 50 - 375 - 325
46 - 50 - 175 - 225
47 - 150 + 25 - 125
> 48 - 250 + 225 - 25
49 - 350 + 425 + 75
50 - 450 + 625 + 175
51 - 550 + 825 + 275
52 - 650 +1025 + 375
53 - 750 +1225 + 475
54 - 850 +1425 + 575
55 - 950 +1625 + 675

...just an exercise; Interesting tactic, the Call Ratio BackSpread.

-Steve
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