ECA: Potential Options Strategies on EnCana

Mad About Options takes a look at the stocks getting coverage from Jim Cramer, Fast Money casts and other heavy hitters in the financial press and reviews strategies option traders might have used if they agree or disagree with these assessments of the underlying stocks.

The Pick – EnCana (ECA):

On the November 5th edition of Mad Money, Cramer said ECA is a buy. Earnings are on November 12th ahead of the open.

Bullish Option Trading Idea for ECA:

Short Straddle, Long Call -

• Sell the January 60 straddle for $8.60
• Buy January 65-strike calls for $1.20
• Net credit of $7.40

Maximum risk: $52.60 plus commissions (the straddle strike minus the credit collected).

Maximum potential profit: $7.40 minus commissions (the credit collected).

Breakeven: The strategy will be profitable if ECA is trading above $52.60 at expiration.

Bearish Option Trading Idea on ECA:

Collar With Call Spread -

• Buy the January 2011 45-strike puts for $4.80
• Sell the January 2011 60-85 call spread for $5.00
• Net credit of $0.20

Maximum risk: $24.80 plus commissions (the difference between call strikes minus the credit collected).

Maximum potential profit: $45.20 minus commissions (the put strike plus the credit collected).

Breakeven: The strategy will be profitable if ECA is trading below $60.20 at expiration.

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