As Marc told you on Monday, when a company issues a convertible bond, it is saying, "I will pay you a lower interest rate and give you the opportunity to convert the bond into shares." If those shares are higher at the end of the term, there could be some massive profits in addition to the interest received. But when the deal is announced, the underwriters never release the actual terms of the deal until a day or two later, after they gauge interest. That's when we take advantage of the anomaly. Basically, the market is flying blind. The share price goes down, and the volatility in the options increases. That's the time to strike. We bought in at the market. But instead of selling an option above the share price - like "typical" covered call sellers do - we sold an option well below the share price. This can be done when options premiums are elevated across the board. So instead of buying the shares at $9 and selling the $10 options, for example, War Room members would buy the shares at $9 and sell the $7.50 options. This gives us downside protection and locks in a profit unless the shares trade below $7.50 less the premium received. We may not make as much... but in this market, we must look to the downside as well. In this case, the $10 option was trading for $1 and the $7.50 option was trading for $2.20. If we sold the $10 option, our cost would be $8 and our upside would be 25% ($10 strike price minus $8) only if the shares closed above $10 at expiration. By using the $7.50 option, our cost was $6.80, and the profit potential was 10.2%. But War Room members have less money at risk and will win if the shares stay at the same price, go higher or even go lower. The only way we stand to lose on the play is if the stock drops below our cost, which is almost 25% below its current price. We see anomalies like Bloomin' Brands pop up in the market regularly. "Typical" investors pass them up all the time. However, my probability calculator places the odds of winning with this trade at more than 83%. I'll take that any day. If you want to find out how to make the market work for you, join us in The War Room now! Click here to learn more. Good investing, Karim P.S. Miss hearing from me every week? You can subscribe to my free e-letter Trade of the Day here. (Clicking above will opt you on to the free e-letter Trade of the Day and offers from us and our affiliates that we think might interest you. For any questions, see our Privacy Policy.) | 
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