$GOOG Options Action trade - scott

26 oct - scott on the web extra talking a trade repair for a viewer, here is the clip web extra . a good example of what not to do is what this viewer did, bought Nov 650 calls for $107 ($10700 each) ahead of earnings. not many expected this big down move but when entering a DITM call like that its alway better to go out way into the future in case your thesis is wrong. gives you more time to use other strategies to make some money back. like scotts ratio spread or weekly / monthly calenders. see by buying a front month call this viewers $21000 position is worth $6600 now, going to be difficult to recoup alot of that money in the 3 weeks till opex.. not a good position to be in.
   second, viewer committed huge amount of capital to make a bullish trade, sure if stock moves up then youre a hero. like i always say, if you are going to guess on a direction, then guess cheap... calenders , wide call flys would have been my method.. as a minimum sell some of those juiced up weekly OTM calls at least to reduce the cost basis and make it a calender spread. good example of how to blow out your account..not any risk managment that i can see.
  but on to the trade.. in order to make back some of the money scott recommending  the :

Nov 680/700 call ratio spread (buy one 680 / sell two 700's) for .50 credit

i like the trade setup, but be clear that even if the stock magically pins at 700 to get the max profit of $4000 for the viewer plus the $10000 that the call options will be worth, it will still be a big loser... so best case viewer is down only $8000 vs current $13000 . cnbc does the usual over emphasizing of that your stock "will be called away" at the 700 level.. thats only if you dont do anything and just let this ratio spread go into opex instead of doing what 99% of traders will do and close it out for a profit. tough spot to be in...tails i lose big, heads i lose really big. scott also adds he is not a fan of buying DITM calls because it makes you long the stock..lets see how long it will be before he says the opposite thing . but for scotts spreadsheet / track record it will be good since the only way this ratio spread can "lose" money is if stock is above 720 on Nov opex. see all of scotts on-air trades in this spreadsheet

the other thing about ratio spreads..you dont have to wait for your long postion to lose money to put it on..you can initiate a new long position right now with stock or DITM calls AND ALSO put on a ratio spread at the same time and get a double leveraged upside position with no added buying power needed..so if monday you decided to go long you could add this ratio on top of it for free..free trades are good.