New Trade – diagonal call spread / market hedge

Stock / Symbol: [private_monthly]iPath S&) 500 VIX Short-Term Futures / VXX[/private_monthly]
Price at trade post: $30.52
Option Strategy: diagonal call spread

Max Risk: $600
Max Reward: $326 or 54% by Apr 2011 expiration
Profit Range: $29.09 +
Max Profit at: $34 by Apr expiration
Uncalled Return: 12%

Reasoning: Of our 11 open positions, 1 is neutral, 1 is short China, and the rest are long. In case the market pulls back, we'd like to have another trade on that can protect our portfolio. As the market pulls back, volatility will increase and so the [private_monthly]VXX[/private_monthly] will move higher. This position structure gives us until next January to make money on the trade, allows us to take in 10 - 15% per month by selling near term calls, and yet allows us to profit from quick market pullbacks. If [private_monthly]VXX[/private_monthly] is trading under 34 by April expiration, we'll look to sell the May 34 call.

Trade Details:
[private_monthly]

Buy 1 VXX Jan12 30 Call
Sell -1 VXX Apr11 34 Call
for a net debit of $6.00 per contract

Requirements:
Cost/Proceeds $600.00
Option Requirement $0.00
Total Requirements $600.00
Estimated Commission $12.95

Chart:
[private_monthly]

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