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