Monthly Cash Machine Newsletter, Wednesday, 03/30/2005 03:30:58 PM ET
Trade Alert - CHIR
HAVING TROUBLE PRINTING?
No Rally Here!
Today's broad rebound in equities boosted a number of positions in the MCM Portfolio, however one issue that does not seem to be participating in the upside activity is Chiron (NASDAQ:CHIR). The stock drifted higher early in the session but failed to maintain the bullish trend as the day wore on and now it is trading where it started, slightly above $35. Click here for a chart of today's activity.
Our current plan is to roll down and forward to the JUL-30/JUL-32.5 put credit spread and since the option prices are relatively favorable for that transition, we are going to recommend that readers make the transition now. The existing spread can be closed for a debit of $0.65-$0.70 and the new spread can be initiated for a credit of $0.50-$0.55.
The transaction includes these "closing" orders:
Buy to Close APR-35.00 Put (CIQ-PG)
Sell to Close APR-32.50 Put (CIQ-PZ)
Net-debit target = $0.65-$0.70
Followed by these "opening" orders:
Sell to Open JUL-32.50 Put (CIQ-SZ)
Buy to Open JUL-30.00 Put (CIQ-SF)
Net-credit target = $0.50-$0.55
The cost basis in the new position will be approximately $32.30 with a net gain of $0.15-$0.20 per contract, if the play is (eventually) successful. However, all of the option values will change with the movement in the underlying issue so you must focus on the "net" cost or gain when determining the prices for each order. Keep in mind, this adjustment is not intended to increase the potential profit, but rather to simply avoid a large loss in the initial spread. Traders who are not comfortable with the "roll-out" strategy should simply close the position for the current debit and plan to use their portfolio capital when another favorable spread candidate emerges.