Daniel.B

Put Ratio Backspread, Shorting the gap

Kort
NYSE:IBM   International Business Machines Corporation
Well as this stock did gap down with good volume supporting the move. I decided to enter short through a Put ratio backspread. Reason being that this options' strategy simply limits my risk in regards to the large gap between 172.50 / 162.50. All in all, I'm looking for further downside to retest the 150.00 / 152.00 area.

For those wondering what a ratio backspread spread is I'll give you a link with a definition of it. Feel free to also just google put ratio backspread if you want to find a better explanation of it.
www.theoptionsguide..../put-backspread.aspx

The position:
  • Bought +2 100 AUG 15 157.5 Puts
  • Sold/Wrote -1 100 AUG 15 162.5 Puts

The trade:
  • Exiting at a loss if we get a daily close above the 200 Moving Average.
  • Exiting at a profit if we reach the 150 / 152 area.

Cheers, happy trading! =)
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