Important note: You are naked half of the puts traded so, becoming long Goldcorp (GG) shares at a cost basis of $34.00 (20% lower than today's price) is a real possibility at April expiration. The initial margin requirement is likely in the ballpark of $1,000 for every 1 x 2 put spread traded.
Buy to open @ ratio of 1: April 42.00 strike puts (GAGPP)
Sell to open @ ratio of 2: April 38.00 strike puts (GAGPC)
Limit credit: .05 (try to put this trade on for at least breakeven of a zero debit/credit)
Maximum risk = unlimited below lower breakeven of 34.00/share. This because half of the puts traded are naked.
Maximum reward = 4.05 (or $405 per 1 x 2 traded)
NOTE: A gain of the entire 4.05 is a low probability, some portion of that is what we are gunning for.
The stock price moving higher and we make a small profit in the credit (.05). The stock price declining between 2% - 20% from current prices we make some good profit. If the stock falls further than 20% by April expiration and we are still in the trade, we will be long the stock and under water in the trade.
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