Alternative Visa Trade

 5 jun

this fridays Options Action had a trade from Tony on Visa with some commentary from Mike. here is the video clip

Options Action Visa Clip

First off, still being skeptical that technical analysis is more a self fulfilling prophecy than anything else, i dont believe its relevant to pull up a 20 year chart for a trend line. 1 year yes, 2 years ok. 20 is just silly. Tony's 2nd chart has relevance. he notes the 190 level that is now support. Stocks been somewhat rangebound for a while.

Tony proposes a July 210/190 Put spread for $5.16 debit with the thesis of stock returning to 190 area. ok, that supports the direction. what id like to do is find a trade with less initial up front cost. Visa has never been a good options trading stock for me for lack of volatility / low premium.

Using the same thesis that stock returns to test the 190 area, an alternative (cheaper) bearish trade with stock at 212 is:

Buy a Put Calender spread - buy the July 200 put at $4.20 (ask price) and sell the JUN 200 put at $1.46 (bid) for $2.55 mid point debit. Im skipping this weeks 200 put for the following reason... this weeks Put is at .55 vs 2weeks of $1.46 .. i would expect this weeks put to be about .70. this weeks put is under priced or next weeks is overpriced. regardless im getting slightly better premium for that 2nd week of holding it vs two weeks sold individually (all other things being equal).

So now you have the calendar spread at $2.55 . i chose the 200 strike assuming the stock works its way lower to 190 area so eventually the July 200 will be worth near $10. After the JUN 200 expires (best case worthless/max profit) then resell another short put against that Long July Put.. another best case is stock is near 200 and you can sell an even lower strike short put , maybe 195 or 190.

The idea going forward is selling those short Puts continues to chip away at the cost basis of the trade, maybe even making it free if stock cooperates.

both trades will be profitable at 190 at July opex, im just looking to pay less money up front / lose less if im wrong

 

Selling Covered Calls comments

 

4 Jun

going to take the other side to a couple of comments about covered calls as seen in this clip on Options Action

Options Action Clip

The portion referencing to avoid selling covered calls around catalysts.. because stocks can move alot from earnings. thats not untrue. but if you follow TSLA weve seen 10% daily moves unrelated to earnings. 

using the 20delta for your short call is not bad level.. a 16 delta is about a 1 standard deviation move. but why should that metric be any different during an earnings catalyst. the options market is pricing in a 20 delta move there as well and the premium is likely considerably juicer than a normal opex period. I look forward to those catalyst weeks. Flip side your thesis might be bearish but dont want to sell your stock so that juicier premium might be your downside hedge, especially if you sell closer to the money. all depends on your thesis going forward. 

Back to TSLA, ive been following several long time bulls and naturally during the volatile movements the consideration of just "selling everything" comes up. ok, no problem, but think thru any tax implications first and an alternative strategy might be to sell at the money calls instead of sell the stock. TSLA again for instance.. the Jun at the money 700 call could sell for $43ish ($4300) per 100 shares...for 2 weeks. never know what will happen. stock might be flat, might go down so you pick up $43 of downside hedge, might go up so you essentially sell at 743 vs "selling everything" at 700. Is that worth 2 weeks? maybe maybe not.

Point being, i'd continue the covered call selling thru catalysts, adjust your delta if worried. sell a 10delta instead. you will kick yourself if the stock actually goes down and you didnt capture some easy premium