Friday, November 18, 2011

Mayhem in Europe and Banks, Print Or Collapse? Using XLF Either Way

Will the ECB print at will and save European banks, causing stocks to skyrocket (at severe costs down the line), or will Europe fall apart?

Below are straddles for XLF, the popular financial ETF, for December. There are two versions, one in-the-money, and one out-of-the money. As long as XLF moves the indicated amount, the positions will be profitable.

Although the moves needed are similar, these are very different beasts with different risks and potential gains. The OTM versions can potentially become much more profitable, but can also drop to $0 (shall XLF end between $12 and $13). The ITM in this case cannot end at $0 but will not appreciate as much. No pain, no gain!

Computed with StraddlesCalc Tool

Please do your own due diligence. This is not advice. Options are very dangerous and may cause 100% loss.

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