Trade: MHK Earnings by Binary Trade/Call Spread

"Fast Money" trader Jon Najarian identified that a big trader is placing bet on Feb 135 calls ($6.70) and selling 110 puts ($3.20) to finance the bet. This is a bullish bet costing ($3.50) and will break even at 138.50. Unlike this trade that has unlimited downside loss, I am placing a bull call spread (I prefer to call it binary as I win/loose about the same if bet is on winning/loosing side).

Date/Time: 24-Oct'13
MHK at 131.73

Trade: Bull Call Spread
Buy 1 MHK Feb21'14 130 Call
Sell 1 MHK Feb21'14 135 Call 

Premium (debt): $2.40 
Max Profit possible at expiration: $5-$2.40 =$2.60 
Expectation: I am expecting significant upside movement of this stock and plan to take profit of $50. If the stock has strong momentum, I may wait for some more profit.

The Price to P&L graph looks like this:

Red vertical line is current price of MHK, Dashed horizontal near shows current PL. Green curve is PL curve at T=0.

Blue line is PL curve at expiration. Magenta, Red, and Brown shows PL curve for next 7, next 21 and next 35 days respectively.

Let us see what happens. I will update this trade

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Status update: 11-Nov'13

Analysis: The profit has reached $55. I feel greedy to wait for more, but may close the trade with $60 profit (excluding commission which is about $5).

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