Well I'm back in with CRUS. I decided to play it safe with a spread.
BUY AUG $17.50/CALLS @ $1.44
SELL AUG $20/CALLS @ $0.64
This makes my total risk $0.80 per contract spread.
$1.44 - $0.64 = $0.80
If we add this $0.80 to the lowest strike price of $17.50, we can see our "break even" point is set @ $18.30. Therefore, anything above $18.30 is pure profit. So in other words we lowered our risk on the AUG $17.50/CALLS from $1.44 to $0.80 for a 44% savings.
The trade trade off for this savings and reduced risk is the top side profits. We sold the $20/CALLS to cover part of the expenses of the $17.50/CALLS. So eventually we will need to buy these $20/CALLS back to cover. This is very similar to what happens when we take a short position and cover that position later. The only difference is that when using option we have a time clock. In this case that time clock would be the 3rd Friday in August.
So what is our possible upside? Well, that would be the difference between the strikes of the spread.
$20/CALLS - $17.50/CALLS = $2.50
Since we only spent $0.80, we have more than a 3:1 reward to risk ratio. Now we just need to relax and see where we go.....
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