Medium term
Trade view / 17 August 2016 at 9:03 GMT

#SaxoStrats: Playing a Put Spread on an overbought SAP

Head of Futures & Listed Options / Saxo Bank
Denmark
saxostrats
 
Background

After a bullish wave 69.94 on June 27/79.34 on August 11 SAP is now overbought.
Stochastics, RSI and MACD are giving us a selling signal and we're buying the Sep16 78/72 Put Spread on SAP to play a retracement to the 72.60/72.14 area (respectively 50-day moving average and 50% of retracement of 64.94/79.34.

Overbought SAP

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Source: Saxo Bank

Management and risk description

Entry:  Buy SAP Sep16 78/72 Put Spread at €1.29
           =>  Buy SAP Sep16 78 Put at €1.52
          &     Sell SAP Sep16 72 Put at €0.23

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
= 78 - 72 - 1.29
= 4.71 or €471 per Put Spread

Return on investment if the market closes at 72 or below at expiry
= Profit/Premium X 100
= €4.71/€1.29 X 100
= 365.12%

Maximum Loss
Maximum loss is limited to premium paid
Maximum loss is €1.29 or €129 per Put Spread

Breakeven point at expiry
Long Strike - Premium Paid
€78 - €1.29 = €76.71

Target: 72 or below

Time horizon: 30 days

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
17 August
Feders Feders
Very nice trade! hard to fine this level of ROI.Hope goes well. Do you use some screener to find the three signals you use (Stochastics, RSI and MACD )?
17 August
Patrice Henault Patrice Henault
No I just screen myself 64 chart windows
17 August
Feders Feders
Thanks Patrice!
02 September
Feders Feders
Hello, what the charts say, trade still in place?
05 September
Patrice Henault Patrice Henault
With the break through to new high Friday the trade is off.
you can still sell is back at Friday market close price at €0.20 hence taking a loss of €1.09

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