Option Investor


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Hi Gang,

I was playing with some numbers and I stumbled across what might be an interesting trade. It's like our quickie trades, but with a limited risk. Here's what I found. It's a short term Siamese Condor. This is NOT an official CPTI position -- just something to think about. With GOOG trading near 465,

Sell 10 April GOOG 470 puts - GOPPG
Sell 10 April GOOG 470 calls - GOPDG
Credit of about $21.90 (21,900)

Buy 10 April GOOG 460 puts - GOPPL
Buy 10 April GOOG 480 calls - GOPDI
Debit of about $13.70 ($13,700)

Net credit of $8.20 ($8,200). Maintenance is $10,000. Even if GOOG blows past the long put or call, you are actually only risking the $1.80 difference between the $10,000 maintenance and the $8,200 taken in of premium.

The closer GOOG finishes to 470, the more money you could make -- with a maximum potential profit of $8.20. Is it worth a maximum risk of $1.80 to possibly make $8.20? Good question.

There is, however, a fly in the ointment. GOOG is scheduled to announce earnings on April 19th -- that's the Thursday prior to expiration. We know that there is normally a huge reaction to GOOG earnings numbers. That, by itself, makes this trade something less than a good idea. Remember, you don't have to hold the trade through expiration. You might be able to get out of it with a profit at some point before the earnings announcement.

I just wanted to share this with you for educational purposes. I want to get you thinking. Have fun with the information. You might want to paper trade it.


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