Quantcast

The Money Blogs is the source for Blogs about the latest financial and stock market news with rss feeds

This post received 419 Money Blog views

Trading > Futures Commentary

Pound Butterfly Spread

Derek Frey | Thu, 02/21/2008 - 2:25am | F, Forex, Pound, Spread |  Add a comment

Rank this post

0

Note: This trade can be done in either Futures and or FOREX. The first example below is the Futures version and the second example is the FOREX.

Trade Recommendation:?? 02/20/2007 (Futures)

From the Desk of:
Derek Frey
Market:

March 2007 British Pound (BPH8)
Tick value: 1 point = $6.25
Trade Description: Bullish Ladder
Option Expiration date: 03/07/08
Max risk: approximately $312.50
Max Profit potential: $937.50 or 3:1
O&F Clients: O&F Clients: click here to respond to this trade Please be sure and type your account number or name in the body of the email as well as the quantity of spreads you would like. Call us at 1-866-636-6378 if you have any trouble with this feature. You will get a confirmation email from us once the order is received.

Buy a March 2008 British Pound 195 and a 200 call, while selling a 197 and a 198 call for a maximum cost and risk of 50 $312.50 or less.

This trade is a low cost and risk way to be long the British Pound at the money call for the next 3 weeks with no risk of being stopped out and a small max risk level clearly defined. We are buying this market due to the strong triple bottom you can see on the daily chart below. For this trade to profit all we need to see is this market continue to stay within its already well established range. The closer to the mean of that range the more profit we can make.

Profit Goal:

Max profit is 150 points ($937.50) and occurs at expiration with the market expiring anywhere between 197-198.

Break even points are 195.50 and 199.50 giving us 400 points in which the trade can be profitable.
Expiry is 03/07/08

Risk Analysis:

Max risk, before commissions and fees, and assuming the above mentioned fill would be $312.50. The full premium paid for the spread is lost at expiration if the market expires above 200 or below 195.


*Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.

Comments

Please or register to post comments.