Bear call spread on DJ?

MSCantrell said: "Alright, Doc (and others ;) ), how about this one? June 55/60 Call credit spread on DJ. $1.25 max reward, $3.75 max risk. That's 33% three Fridays from now. Stock is trending down, and we're all bearish on the market as a whole over the short term, am I right? That is, we see a big correction a-comin'? It's not far out of the money right now, that's true. The underlying wouldn't have to go far up to hurt us. I'm a rookie as far as MACD and stochastics go, what do they say on this one? Thanks! Mike"

roarflolo said: "The question is what happens with the $60 bid from Newscorp, will the Bancroft family take it or not? Seems all other shareholders are for it but the Bancroft family owns 64% of DJ so it's up to them. I don't know if Newcorp (or someone else) will come in with a higher bid either. You get what you pay for (sell for); High volatility :)"

drdan said: "I am with Roarflo on this one. MACD and Stoch are useless in this situation. This is a case in which news and volatility are going to take charge of the stock and option price. The only reason you play a credit spread on this is if you have a strong feeling of the direction and then you lower your capital risk by playing even closer than what you are like selling an in the money option or just out of the money and then buying an out of the money option. This is definitely one to stay away from if you are a beginner. If you want to play the volatility here you can trade butterflys - see our last high volatility trade here - [url]http://www.superiorinvestor.net/thread5322.html[/url] Roar and I were going for the direction and Holzie beat us by just trading the volatility. Good return for three weeks though your thinking is correct, it is just that the news can hurt you."

MSCantrell said: "[QUOTE=drdan] If you want to play the volatility here you can trade butterflys - see our last high volatility trade here - [url]http://www.superiorinvestor.net/thread5322.html[/url] [/QUOTE] Great advice, guys, thanks mucho. So what you're saying is, the drop in volatility in DJ after the announcement is more inevitable than the stock price continuing to trend downward. Makes sense, no problem there. But if we're anticipating the same sort of action as DNDN the other day, can't we save some cost in commissions by just playing a straddle on it? When is that announcement coming, exactly? Thanks! Mike"

roarflolo said: "I don't see any specific date for the decision, no scheduled shareholders meeting for a vote. Don't know if it's a good idea but since there is no specific date and the current offer is $60 a 60/65 call vertical may be "safe". The only thing that would kill that one is if someone makes a higher offer. I have no idea whether that could happen or not. About 11% return on risk."

roarflolo said: "Tomorrow may be interesting for DJ: [url]http://www.bloomberg.com/apps/news?pid=20601087&sid=aaHDaysPx5Ww&refer=home[/url] [QUOTE]Shares of Dow Jones & Co. may rise after the controlling Bancroft family ended decades of resistance to a sale of the company and agreed to meet with Rupert Murdoch's News Corp. on his $5 billion bid. [/QUOTE]"