In article, “DJIA – Stock Price Resistance“, we outlined a bearish strategy for the Dow Jones Industrial Average when the index is close to its historic high using bear call spread options. Basically, the $DJX had to remain below $120.1 for the strategy to be profitable. The options for the $DJX expire “AM Settlement”, and based on the opening price of the stocks in the $DJX on October 20, 2006, the settlement price for the $DJX was $120.16 (see settlement values ).
Based on this, the position lost -3.2%, instead of making the maximum potential return of +5.3%.The DJIA resistance bear call spread options strategy was very close to being successful, and just barely got nipped at the wire. The DJIA is still flirting with historic highs, so we’ll revisit this strategy once again. Using PowerOptions SmartSearchXL search engine, we find a $DJX bear call spread options position available with a probability of success of 84.6% and a potential return of 8.1% (26 days).
| SmartSearchXL for 10/23/2006 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
Sell Option |
Expire &Strike |
Bid | Buy Option |
Expire &Strike |
Ask | %Ret | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $DJX | 121.05 (+1.03) | DJWKT | 06 NOV 124.0 (26) | 0.2 | DJWKV | 06 NOV 126.0 (26) | 0.05 | 8.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As long as the $DJX is below 124.15 at options expiration on November 17, 2006, this position will return 8.1%, not bad for holding a position only 26 days.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the Dow Jones Industrial Average bear call credit spreads investment strategy.
PowerOptions provides Internet based tools for analyzing stock options with specific search criteria and for finding potentially lucrative option income. For those seeking to execute a bear call credit spreads investment strategy for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing calendar call spread options positions.
[tags] bear call credit spreads, investment strategy, option income, poweroptions, stock options [/tags]