Trade Review starring Stratasys

One of the exciting growth stories is in 3-D printing. This technology opens the door for so many exciting things going forward and as expected it has drawn a lot of investor interest. Here are a few of the key players, along with some new entrants:

  • $DDD
  • $SSYS
  • $XONE
  • $PRLB
  • @makerbot

On Monday, $SSYS will be announcing earnings and so we will get another glimpse into how this industry is doing. In anticipation of a nice post-earnings move , I have executed the following trade:

SSYS_earningsLet me break it down for those that may not understand:

  • I am long the March 70 & 85 Calls
  • I am short the June 85 Call
  • This trade was done for a very small credit

To illustrate why I chose this structure, even though the March premium was obviously quite high, let’s take a look at a few scenarios on how this trade could play out. I wanted to participate in any upside move so I have to own premium to do so. I reviewed each out-month Option Chain until I found a strike that gave me enough premium to cover the cost of the March premium.

Now for a few potential scenarios:

  1. Stock pulls back to $60. If this occurs, the March premium will go poof (likely having very little value, if any) leaving me with a short 85 Call out in June. The step I would take here is to monitor for a new floor in price and then buy the June 80 Call (if I don’t want to remain naked the short June 85 Call). This would create a June 80/85 Call Spread. If I choose to buy back the June Calls, the cost would be the loss on the trade (minus the small initial credit).
  2. Stock stays within a $5 range of current price (64.26). I would buy back the short June 85 Call. I would then review a few different choices in working the long March premium (2 weeks to expiration starting Monday). One such choice is to create a Call Fly.
  3. Stock pops to $80. If this occurs, and once I am sure it has stalled at resistance, I would sell the March $70 Calls. I would leave the March/June 85 Call Cal in place, just being mindful of the margin use each day. One choice in this scenario would then be to sell the March 85 Call and use the proceeds to help cover the cost of buying the June 80 Call, thus creating a June 80/85 Call Spread.
  4. Extreme scenario. Stock pops to $90. If this occurs, and once I am sure it has stalled at resistance, I would sell the March $70 Calls. If the strength looks good, I would then exercise the March 85 Calls and use some of the proceeds from selling the March 70 Calls to buy June 85 Puts. I would then just let the position ride with the profit locked in. I would be left with long stock, short the June 85 Call, long the June 85 Put (Collar).

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