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Market Neutral Option Spreads

We recently participated in the MetaStock Traders Summit. During the Summit, the Optioneering Team explored Market Neutral Spread trades that can guarantee a profit for your trade even if the underlying stock/ETF price declines substantially, making this a great strategy for down markets.

The Team will look at an actual option trade for the BRIC ETF that will profit regardless of the price movement of the underlying ETF. The Market Neutral calculator below displays the profit potential for this spread trade, assuming various prices changes in the BKF ETF at option expiration from a 30% increase to a 100% decline.

The analysis below reveals:

- If the BRIC ETF remains flat at option expiration a $813 profit and a 75.6% return will be realized (circled)

- A 10% increase in the ETF results in a $1,322 profit and a 122.9% return (circled)

- A 40% decline in the ETF results in a 62.5% return (circled)

- The minimum profit for this trade is 48.8% regardless of the price movement of BKF

Learn how to set up option spreads that can profit if the underlying stock/ETF increases in price, remains flat or declines in price.