1. Feb 26th/2011
Toyota shares are trading at prices reflecting the auto manufacturer’s design flaws.
The well publicized news of defective brakes and resulting business fallout pushed Toyota’s
share price down from the low $90s to $70.
The shares may have bottomed out and may rise back up to $90 +
If you also think that we recommend the following:
1. Buy 100 Toyota shares @ $74.43. Total cost $7,443
or
2. Buy 7 Toyota January 2011 70 calls for $10.70. Total cost US$7,490
7 contracts represents 700 shares exposure. January 2011 is the calls’ expiration date and $70
is the exercise price. The calls buyer has the right to buy 700 shares at $70 until January 2011.
If the shares rise back up to $90 (21% increase) then:
1. The 100 shares buyer will have made US$1557 net profit.
2. The options buyer will have made a minimum of US$6510($14,000-$7,490) or 87%
net profit.