Stock / Symbol: [private_monthly]ProShares UltraShort 20+ Year Treasury / TBT [/private_monthly]
Price at trade post: $37.89
Option Strategy: calendar call spread
Max Risk: $596
Max Reward: $389 or 65% by May 2011 expiration
Profit Range: $37.84 - $42.60
Max Profit at: $40
Uncalled Return: 30%
Reasoning: Well, we have to give credit for this trade to Tom Sosnoff, the founder of ThinkorSwim, whom we had the pleasure of meeting last week. His premise was that that interest rates are still historically low and have nowhere to go but up. He recommended using [private_monthly]TBT[/private_monthly] to trade the predicted rise in interest rates. Starting with this idea, we've come up with a calendar call spread on [private_monthly]TBT[/private_monthly]. Our price target is between $40 - $42 by May expiration. If the stock is trading under $40 by May 20th, we'll have taken in an uncalled return of 30% and will then look to sell the June 40 strike calls.
Trade Details:
[private_monthly]
BTO 4 TBT Sep11 40 Call s @ $2.14 for $856.00
STO -4 TBT May11 40 Calls @ $0.65 for ($260.00)
for a net debit of $1.49 per contract
Requirements:
Cost/Proceeds: $596.00
Option Requirement: $0.00
Total Requirements: $596.00
Estimated Commission: $12.95
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Chart:
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