Medium term
Trade view / 16 August 2016 at 14:24 GMT

#SaxoStrats: Facebook Sep16 125/120 Put Spread play

Head of Futures & Listed Options / Saxo Bank

Facebook broke its main daily trend of support and is trading below its 10-day moving average.
Stochastics, RSI and MACD are bearish.
We're buying the Sep16 125/120 Put Spread to play a retracement on the 38.20%-50% area of retracement of the last bullish wave 108.23/128.33 respectively 120.65/118.28.

Source: SaxoTraderGO

Management and risk description

Entry:  Buy FB Sep16 125/120 Put Spread at $2.18
      →   Buy FB Sep16 125 Put at $3.68
 & Sell  FB Sep16 120 Put at $1.50
Maximum Profit at expiry is limited
Maximum profit at expiry achieved when underlying price =< short strike price
At expiry maximum profit = Long Strike Price minus Short Strike Price minus Premium Paid
                                    = 125 – 120 - 2.18
                                    = 2.82 or $282 per Put Spread
Return on investment if the market closes at 120 or below at expiry
= Profit/Premium X 100
= $2.82/$2.18 X 100
= 129.36%

Maximum Loss
Maximum loss is limited to premium paid
Maximum loss is $2.18 or $218 per Put Spread
Breakeven point at expiry
Long Strike – Premium Paid
$125 - $2.18 = $122.82
Target: 120 or below
Time horizon: 31 days

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
21 August
ssivis ssivis
Hello Patrice, one Q pls. what if buy 120/115 Put spreads for 0,72c. and target to 120 anyway, isn t it more effordable or I'm thinking wrong? thanks.
22 August
Patrice Henault Patrice Henault
Hi ssivis
If you buy the Sep16 120/115 Put Spread at $0.72 it means your breakeven point at expiry is
Long Strike minus Premium Paid => 120 - 0.72 = 119.28

Your Max Profit is acheived if market closes at or below 115 at expiry.
Your Max Profit if market close at or below 115 at expiry is
Long Strike minus Short Strike minus Premium Paid
120 - 115 - 0.72

Your Max Loss is limited to Premium Paid = $0.72 or $72 for one Put Spread

Your Return On Investment at expiry if market closes at 115 or below
=Max Profit / Premium Paid X 100
=4.28/0.72 X 100
= 594.44%

But for this ROI to happen Facebook needs to trade at or below 115 in 25 days
on the other hand if the market close at or above 119.28 (your breakeven point) you will lose all your premium $0.72 and that is your maximum loss.
22 August
ssivis ssivis
many thanks Patrice :)
02 September
Feders Feders
Hi, should we hold in this trade? still chances of going our way?
15 September
shall we close this trade of shall we let this expire?
16 September
Patrice Henault Patrice Henault
we let it expire


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