The following is the OptionBT sighting of
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Position Description  :
Position taken   :
Nineteen months out,
Vertical Bull Spread on Calls,
Long the 06 Dec 1200 Calls (500 cnt), Short the 06 Dec 1225 Calls (500 cnt)
No Margin required,
Close on the day of trade May 31,2005 was 1191.50.
December 15,2006 / Settlement = 1428.74
500 long call options, 500 short call options
Credit or (Debit)   :
Net = +$550,000 [December 2006 Settlement above 1225.0]
Comments   :   "Journeyman"
A "Journeyman" is a workman that has paid his dues, served his apprenticeship,
and has proven craftsman skills. Our BFHof winner is all of these things.
The numbers are strictly vanilla, 500 count on each leg, a total cost of
$700k ,and a net of $550k at the end of nineteen months.
A total gain of 78.5 percent.
An annual return is 49.6 percent.
What client could refuse this sort of investment?
It is only a case of putting $700K where you mouth is.
Assuming your mouth is that big and you were inclined to give the market
19 months to move 35 points to the upside then you could have done this too.
As you can see below a vertical bull spread in the
money position is not set in stone,
and in fact it is very fluid.
Update #1 - January 11,2006 SPX close = 1294.18 position + $145k
Update #2 - January 20,2006 SPX close = 1261.49 position + $80k
Update #3 - May 31,2006 SPX close = 1270.09 position + $210k
(Note: Updates assume that this position is closed at bid and ask for close of day.)
With the SPX closing in December of 2006 some 230 points above its value
of May 31,2005 (when the position was taken) there doesn't appear to be
anything of interest here.
In fact there are a couple of interesting points to discuss.
The first thing is that the sailing was not all clear and free.
The SPX did decline to 1170 in October 2005. This was ok because
the "Journeyman" was in it for the long haul.
The other interesting point is the timing of when the position was taken.
The ADX (part of the Directional System) was just turning up
and the +DI had just crossed above the -DI.
It is nice to see some reasons for these bigfoot positions. Usually the
reasons for placing the bull or bear positions are hard to decipher.
In this case the "Journeyman" stayed true to the sound formulas of
technical analysis and posted a large win to his resume.
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