It is a payday for me and a fat cheque is waiting for me. When I logged into my account this evening, the following was what I saw: over $4000 jump today for merely 3 contracts of call options for HK (Petrohawk Energy). Naturally I wanted to find out what was going on. It turned out that BHP, the world largest mining company for minerals from Australia, is going to buy HK (a small US oil and natural gas company) at $38.75 in cash. Instantly the HK share price jumped by 62% and its call options were also going wild.
I did not mean to show this to you for bragging how much money I had made with this trade. It is purely a luck since I certainly did not know this when I went into this trade about a year ago. Rather, I'm really happy about the strategy I used, which has turned out to be very fruitful. The more important part of this strategy is that it can really help to use the trading capital/money more efficiently. I was testing this strategy with this trade and a few others and it really works very well. Given its complexity, I will not going into its technical details but just the idea. As you can see, there are two components of this trade. I sold the HK put options to get paid for about $2500 (the lower portion). I then used this money to buy 3 contracts of the HK call options at about $2200. Net-net, I didn't pay anything but actually pocketed in about $300 to start with. In other words, I bet HK would be doing great with share prices appreciated over time and I got into this trade by using others' money to fund my bet. Of course, there is no free lunch. If I were wrong, I'd have to buy the HK stocks, but at a much lower price. To me, it is kind of win-win situation when I was so much in favor of this company, given I have been really bullish about the natural gas as a long term trend. In combo, I'm now looking at about $8000 total profit ($5474 + $2498). I was hoping for more with this trade actually over time, but with this cash purchase deal in place, this is the max I can expect now. I will cash it out ASAP.
| Trade | 12.60 | 0.00 | 0.00% | $4,125.00* | 3 | $7.35 | $5,474.96* | 246.62%* |
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| Trade | 0.02 | -0.15 | -88.24% | $240.00* | -15 | $1.70 | $2,498.50 | 97.16% |
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