Still profit even after 40% drop in price??

Our order to sell puts on GOLDEN STAR RESOURCES (GSS - USD 3.31 - YTD 12 %), a Canadian junior miner, has been filled today. We sold 30 put contracts January 2009 with a strike of USD 2.50 at a premium of USD 0.50. In return for the obligation to buy 3.000 stocks at a price of USD 2.50, if the they would trade below that price by January 2009, our savings account is credited with USD 1.500 (30 * 100 * 0.50). The money needed for a possible purchase of the stocks (assignment), is blocked as a guarantee on our account. For this trade this margin amount is USD 7.500 (3000 * USD 2.50). We have a conservative approach and don’t like to leverage. So, we use a 100% margin. The premium of USD 1.500 represents 20% of the margin (1.500/7.500). The duration of this put is 1 year and 5 months. The return on an annual basis amounts to 14%, fully in line with our investment targets. Golden Star may fall another 20% (from 3,31 to 2,50) before the positive return diminishes. Only at a price of USD 2.00 (2.50 minus the received premium of USD 0.50) the profit is completely wiped out.. This means that GSS can fall 40% from current levels before the position turns negative. Golden Star reached a 2007 high of USD 4.95 in April. We think the recent fall in the stock price combined with the increased volatility represent an opportunity to sell some puts. We think the shares will find very good support between USD 2.50 and 3.00. Swiss bank UBS recently upgraded the stock to buy. Click here for an current option price: http://finance.yahoo.com/q?s=OCXMZ.X. A recent article on GSS can be found here: http://www.fool.com/investing/value/2007/08/10/wish-upon-a-golden-star.aspx A general GSS profile can be retrieved here: http://seekingalpha.com/by/symbol/gss.

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