Continuing my effort to aggressively but wisely grow my small account into something much larger, amongst other things, by writing various options plays to generate revenue/income, I anticipate writing a vertical put spread on GGC.
GGC is a chemical manufacturing company, with products in vinyl-based building and home improvement products, as well as in high-performance plastics, pulp and paper production, packaging, chemical intermediates, pharmaceuticals, and medical applications. GGC’s is a fundamentally sound company; its 2010 4th quarter estimate was 0.03; it reported 0.43 (or more than 1,000% the estimate).
GGC hit a low at the 2009 market nadir, was erratic from the bottom through the summer of 2010 (i.e., from 5 to 50 to 5 to 50 to 10); but since its bottoming has been climbing a well-defined trend line. Some commentators estimate that it could shortly be $50.
Based on the above, GGC appears to be a good candidate for a vertical put spread. As of today’s close, May 2, 2011, the August 35/30 spread has a potential credit of around $1.10 (I say "around" because Fidelity and TDAmeritrade reflect different values after close) Five contracts would result in a maximum profit of $550 (assumes net credit of 1.10), against a possible loss of about $1,850 (and a break even price of 33.90, a price at which I would be willing to take GGC). Given that there are 100+ days until August expiration, and no fundamental or technical red-flags to suggest that GGC will break its trend line, this trade presents a good risk/reward ratio.