Option Trading Idea: Credit Suisse (CS) Bear Call Spread

Topping the list of financial credit spreads on the ONN Idea Generating Platform (IGP) is a November-dated spread in Credit Suisse Group AG (CS). The stock gapped higher yesterday and closed near a 52-week high of $59.87.

With the lukewarm reaction to stellar results from Goldman Sachs Group (GS) today, financials could see some weakness here, and CS may trade back down to $57 to fill the gap before November expiration in five weeks.

CS Credit Spread Trade Details:

CS is currently trading at $58.72.

Credit Spread/Bear Call Spread–

• Sell the November 60 call (out-of-the-money) for $2.45 per contract.
• Buy the November 65 call (out-of-the-money) for $0.90 per contract.
• Net credit of $1.55 per spread

Profit/Loss Details:

The maximum profit for this spread is the credit collected ($1.55, or $155, per spread) minus commissions. The investor achieves this at November expiration assuming the stock is trading below the 60 strike (as it is now). At this point, both calls expire worthless and the premium is pocketed without the trader paying exit commissions. It is important to remember with this and all credit spreads that profit is limited to this credit collected at the outset of the trade.

This credit spread’s maximum risk is the difference between the short and long call strike ($5.00) minus the credit collected ($1.55), or $3.45 (plus commissions). The return on risk for this trade is approximately 45%.

Breakeven for this trade is the strike of the lower call (60) plus the premium collected, or $61.55. CS would have to rally about 5% before November 20th in order to breach this breakeven level.

Remember, trading Ideas are generated by the ONN Idea Generating Platform as a starting point for people to begin their own research. Trading ideas are not intended as trading or investment advice or recommendations that any particular security or strategy may be suitable for any specific person. You are solely responsible for your investment decisions, but we hope that some of these ideas will give you a starting point as you look for strategies to employ.

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