The following is from a Barrons article by STEVEN M. SEARS
Butterfly Option Trade on Sprint
IF THE FEDERAL RESERVE can print money, so can you. All you need is a little cash, and a ton of nerve.
Consider Sprint Nextel (ticker: S). The $4 stock is a dog; it has declined 12% in the past three months, and yet trading volumes are surging, demonstrating that distressed equities – what institutional investors call penny stocks – are incredibly alluring in this market because of the potential to make double- or triple-digit returns on small price movements.
If you want to make a potential 500% return on one trade, Credit Suisse advised clients Tuesday to position for Sprint to move to $5 by January.
The bank told institutional clients to consider a “call fly” that entails buying January $4 calls and January $6 calls, and selling twice as many January $5 calls.
With the stock around $4, [...]