Blackstone Option Trade for Bulls

aplus's picture

If you believe that the economy is recovering, housing is rebounding and the market will not melt down in the next few months; then this is a trade that makes great use of capital to give you bullish exposure.  We like Blackstone (BX) because of their exposure to US and International private equity markets, alternative investments and real estate.  Yes, real estate.  They have been buying billions of dollars worth of single family houses in select cities, and those markets have shown signs of recovery.  Over time, this strategy should payoff for Blackstone as the market recover continues, and those homes get gradually absorbed into the rental and resale markets.

We like a bullish option play on Blackstone, and we're going to buy a call that is financed by selling a put.  We're buying the December 2013 $24 Call for $0.71 cents, and selling a December 2013 $20 Put for $0.74 cents.  This trade pays us $3 per set of put and call contracts, and we end up with a net credit when we execute this trade.  If BX drops below $19.26, we may have to buy the stock at $20 before expiration in December.  That is a 13.4% discount from where the stock is trading today at $22.24.

If the stock rises, the Puts will erode on value, and Calls will go up in value giving us a positive return on both positions.  If the stock ends up expiring somewhere between $20-24, both options could end up worhless and we just keep the credit that we received when we entered the position.  We'll likely get out of the position on the Call side before that happens.


Update on 10/8/13:  This position was closed for a combined gain of 333%, see the following article for details on the closing trade:




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