Goldman’s Move

Surprising Down-Move Flips a Quick Profit

By Bryan Bottarelli
Tuesday, June 13, 2006 11:30 AM EST
Tue, 13 Jun 2006 16:30:00 GMT

Dear Bottarelli Research Member,

Here’s a quick status update on your Goldman play:

Yesterday, you purchased the GS July 170 Calls (GPY GN) for $0.65 and the GS July 125 Puts (GS SE) for $0.85. Your total cost for owning each position was $1.50.

As I write, GS is down $4.10, and your July 125 puts have alone traded for a high of $1.80. If you add that to the $0.20 value of the July 170 Calls, your total position is worth $2.00. That’s a 33.3% gain from your $1.50 entry price. Since we had both sides covered, we achieved these gains with virtually no risk! That’s the beauty of a play like this.

GS#2

How should we manage this going forward? Well, I’m a little disappointed that we did not get the big $10.00 move I had hoped for. That would have really given us a tremendous gain. Nevertheless, we cannot scoff at a 33.3% gainer in two days time. Therefore, if your total basket position reaches $2.00 today, let’s conservatively take the profits off the table.

PROFIT SUMMARY: Sell your basket of GS July 170 Calls (GPY GN) and GS July 125 Puts (GS SE) at or above $2.00, good for the day.

Tactical Trading Note: The first priority should be to get the best possible sell price on your puts. Shoot for at least $1.80. Once they have been sold, liquidating the calls is your secondary task.

QUESTION: Charter Member M.I writes in to ask, “HAVE FOLLOWED YOUR RECOMMENDATION FOR BOTH CALLS & PUTS BUT WOULD LIKE TO KNOW YOUR THINKING ON SUCH A WIDE VARIATION ON STRIKE PRICE?”

ANSWER: The idea was to use a super-cheap option on each side — because those are the ones that stand to make the most explosive moves. Had we played a straddle “at the money,” we would’ve been putting up $15 for each position. This way, we get the same potential “bang” — but for much less up-front “buck.”

Lock and load.

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From June 2006