McMoran Rises 50% today
January 11th, 2010, 2:59 pm EST. Posted under Theta Articles by ThetaTrader.
Post Tags: , MMR
01/11/209 – FREE CONTENT – $10 JAN10 strike options rise 3500% TODAY!
McMoran Natural Gas Exploration company rose 50% today on news of large find in the Gulf Mexico. A friend of ours started a small position in MMR back in November by selling the 7.5 Put to purchase the 7.5/10.0 Bull Call spread. He manage to pocket $50 on initial trade. At worst he would have been PUT the stock for $7 in JAN10. However, last week he was able to buy back the $10 & $7.5 short strikes for 0.05 each & today his left over $7.5 long call option contract is now worth $600…..so he ended up making $650 dollars off $150 in margin within 3 months. Now that’s not a bad trade, and it’s a heck of a lot better then had he bought the stock that day at $7.5 back in NOV09. The actual profit of holding the stock vs making the Three Legged option play is nearly the the same, but the RISK/REWARD ratio is quite different. We don’t know about you, but we certainty prefer making $650 profit off $150 of risk rather than purchasing the stock at $750 to make $600. The option investor would have made (4) times his margin risk on the trade & was committed to buying the stock for nearly 10% less than $7.5, while the traditional investor nearly double his investment.
Although we noticed unusual option activity on the JAN10 10 callers over these past few weeks & today we found out why! So what IF we would have bought (25) 10.0 contracts for let’s say 0.10 cent pc last Friday. Let’s look at the profits on that trade. Try not to cry, because we almost did!
Today’s Action – Prices @ 2:15 est : Look at the 10 Call Options, they were 0.10 last Friday
Option prices @ 3:18 est….wow up another $1 in 45 minutes; totally nuts!
What If, Open Order:
Buy To Open: (25) JAN11 10 Calls – 0.10 debit
What If, Closing Order:
Sell To Open: (25) JAN11 10 Calls – 3.60 credit
Profit: $350 profit per contract – $8,750 Profit off a $250 initial investment or 3500% return on investment in ONE day….and believe me; somebody knew this news ahead of time because there were a lot of options being consumed before this thing popped today.
The short players are truly getting crushed today…..hopefully they bought some $10 callers last week.