Option Investor

Option Writer Update

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BHP Billiton Limited (BHP), together with its subsidiaries, operates as a diversified natural resources company. The company operates 10 customer sector groups (CSGs), aligned with the commodities that the company extracts and markets, which includes Aluminium, Base Metals, Uranium, Diamonds and Specialty Products, Energy Coal, Iron Ore, Manganese, Metallurgical Coal, Petroleum, and Stainless Steel Materials.

The stock has had a nice run and I believe that there is a good chance the double top will hold. Some of you might think this is a strange play but it is really a step into a short strangle (sell OTM call and puts at different strikes). The stock opened stronger and is now selling off. More aggressive traders can sell 3 contracts to the conservative option writer's 1. This trade has some risk as identified by the higher than normal Max Return of 26%.

A selloff to the 80 level may prompt me to sell the puts. We may be jumping the gun here with selling the calls but I think it is a good start to our trade. A break above the 90 level may prompt an alert to cover the call.

Risk Management for BHP
Strike Stop = $ 95.00
Cost Basis Stop = $ 97.65
Technical Stop = $ 90.00
Premium Stop = $ 94.00

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