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Friday, September 14, 2007
Trade Log - Sept. 14 2007
We made two trades yesterday at near market open:
The first trade was in CTSH. CTSH is a stock we both have been watching for quite a while now. This is a strong company that has been beaten down with the recent market dip. Our feeling is that CTSH should increase in price over the long term.
The trade consists of us selling an October CTSH put option contract at an $80 strike and covering that position by buying a longer-term January CTSH put option at $75. We earned an up-front credit on this spread, and our earnings should increase with the price of the underlying as long as it remains below the short strike price plus the cost of the short option, which is about $90.
The second trade was in SPY. We like to trade SPY because it is very liquid, it behaves the way the market behaves as a whole, and it offers options at dollar increments, which is very convenient for us. In general we expect SPY to trend upward gradually, with occasional corrections. Our strategy is to leg into positions on both sides of SPY that allow us to earn premium each month while framing the underlying. I'll talk more about this in a different post.
The trade consists of us selling an October SPY call option contract at a $153 strike and covering it with by buying an October SPY call option contract at a $155 strike. We earned an up-front credit on this spread, and so long as SPY remains below $153 until October expiration we should do alright with this spread.
- BUY DIAGONAL CTSH JAN 08/OCT 07 75/80 PUT
- SELL VERTICAL SPY OCT 07 153/155 CALL
The first trade was in CTSH. CTSH is a stock we both have been watching for quite a while now. This is a strong company that has been beaten down with the recent market dip. Our feeling is that CTSH should increase in price over the long term.
The trade consists of us selling an October CTSH put option contract at an $80 strike and covering that position by buying a longer-term January CTSH put option at $75. We earned an up-front credit on this spread, and our earnings should increase with the price of the underlying as long as it remains below the short strike price plus the cost of the short option, which is about $90.
The second trade was in SPY. We like to trade SPY because it is very liquid, it behaves the way the market behaves as a whole, and it offers options at dollar increments, which is very convenient for us. In general we expect SPY to trend upward gradually, with occasional corrections. Our strategy is to leg into positions on both sides of SPY that allow us to earn premium each month while framing the underlying. I'll talk more about this in a different post.
The trade consists of us selling an October SPY call option contract at a $153 strike and covering it with by buying an October SPY call option contract at a $155 strike. We earned an up-front credit on this spread, and so long as SPY remains below $153 until October expiration we should do alright with this spread.
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