23feb - mike and carter with the trade on Lowes, earnings Wednesday before the bell. here is the video clip LOW clip i dont follow Lowes directly but Home Depot is on my watch list. mike essentially with a diagonal spread
Buy the Jun 125 call
Sell the Feb 132 call
net debit of $6.57 for a one lot
thesis was that the weekly option pricing is elevated because of earnings, thus buy the Jun 125 which is at the money. best outcome is that stock moves up to near 132, the Feb options expires worthless and the Jun option gains in value. 132 being about at the expected move. ok, makes sense. then again its just not my style to buy at the money options nor spend $657 for a directional trade. too pricey for me. obviously if stock moves down from earnings or overall market the trade is a loser. so you need an up move.
my preferred trade if going directional is a calendar spread. but the Feb28 /Jun 130 is still over $3 debit. next up is a butterfly, mike chose 132 being near the top of the expected move so i will use that strike as well. again trying to be cheap so if im wrong its just a few bucks, under $100 ideally. so given the assumption that stock moves up and is near the expected move of 132 at end of week the Feb28 129/132/135 call butterly priced out at .36 for a one lot. a 3 lot gets you to $100 max, which is also your max loss, max profit on the 3lot with at 132 pin is near $800. profit zone at opex is 129-135 , if stock moved up after earnings on Wednesday morning i would exit this at about $1.00-$1.50 if i could and take the 3x-5x win and move on to the next one, if youre going to roll the dice and try for that 132 pin at least sell enough prior to get your initial debit back. I would rather risk .36 vs $657 if im wrong. risk less make more. 3 bags full. note that the stock is near 52week high now so 132 well above . enter this trade Tuesday based on where the stock is trading at that time.
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