The DUG Lowdown

Plus: Maintain JCP Sell

By Bryan Bottarelli
Wednesday, December 24, 2008 11:07 AM EST
Wed, 24 Dec 2008 16:07:00 GMT

Dear Bottarelli Research Member,

The CBOE has posted an update on how they’ll reflect the recent cash distribution of DUG in the current options string. Here’s a rundown…

Going into this week, the options string for the ProShares Ultrashort Oil & Gas called for a per-contract receipt or delivery of 100 shares of DUG plus $180.39 in cash. But as of Tuesday December 23rd, DUG was further adjusted to require the per-contract delivery of 100 shares of DUG plus $606.10 cash. This additional cash disbursement was why the DUG dropped $6.06 at yesterday’s open. In response, the DUG option symbols were changed to the following:

  • DUG option symbol has changed to DYK.
  • DZG option symbol has changed to TYZ.
  • DGU option symbol has changed to TZJ.

I personally find these cash disbursements annoying and obtrusive, simply because we could have locked in a profit on our DUG January 31 calls as yesterday’s trading continued to push down the oil/energy sector.

But as it stands today, a new DUG series with a contract unit of 100 shares will be introduced on Friday, December 26th, 2008, which means that our DUG January 31 Calls (DZG AE) will now be listed under the symbol (TYZ AE).

The CBOE reports that strike prices will remain the same, which means we’ll still trade our January 31 calls. They also report that the “old” contracts will trade for one final day (which is today) before transferring over to the new contract listings on Friday. If this is the case, then I’d like to try selling our DUG January 31 Calls (DZG AE) now. After all, the current bid/ask spread for these calls is $5.80 to $6.70. If you recall, we entered these calls for $5.20, so selling anywhere over $6.00 represents a good scenario. Therefore, if you are able to execute your sale, then do it now.

If not, then we’ll hold these calls into the symbol transfer on Friday. From what I can gather, the exchange is pricing these new symbols exactly where they closed on Monday, which is right at our entry price of $5.20. So either way, we’re sitting at parity with this position. In short, try to sell them today (using the old symbol of DZG AE). If the exchange will not accept this order, then hold them leading into next week.

At the same time, continue working your $2.80 sell order on the JCP January 20 Puts (JCP MS). On two occasions, we came within $0.05 of executing our sell price, so continue working this order until the end of the week.

JCP

But most importantly, I would like to wish you and your family the most joyous holiday season. From a personal side, I truly cherish the opportunity to trade with you each and every day. I’m glad that you’re part of our elite group, and I look forward to a fun and prosperous 2009.

From everyone here at Bottarelli Research, we wish you all the best this holiday season. We’ll talk again next Monday. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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