One of the more anticipated news event is the Apple product announcement today. One of the potential benefactors is $GTAT and so I put on the following trade yesterday to play for an IV crush:
Here is a breakdown of the trade:
I am Long the September 18/17 Strangle
I am Short the September 12 weekly 18/17 Strangle
I am Short the September 22/14 Strangle
This trade takes margin
This trade paid me a $.21 credit
So how does this trade work? Let’s view another way to look at the trade:
I am long the September 18/22 CS
I am long the September 17/14 PS
I am short the September 12 weekly 18/17 Strangle
Once the $AAPL event is over – and the $GTAT news is available – I am looking for the weekly Option IV to implode. As long as it stays within the 14-22 range I can look to do any necessary adjustments this Friday (if price stays in this $17-18 area, yippee).
A Put Ratio in $DE using the September 26 weekly Options:
I would be looking for the $82 Puts to get ITM (in the money) by expiration
A few scenarios to consider:
1) Price is at $81 at expiry. I would let the 82/81 Put Spread auto-exercise for a $1 credit.
2) Price is at $80 at expiry. I would let the 82/81 Put Spread auto-exercise for a $1 credit. I would then evaluate if I want to be Put stock at $80 or not. I could consider adjusting those short $80 Puts to a future expiration as a possible step.
3) Price is at $85 at expiry. The Put Ratio goes poof.
Each weekend I run a variety of proprietary scans to look for potential new trading setups for the upcoming week. Although I have a rather full plate in terms of the number of positions, I do have some room in the Submarine Basket now. With that in mind, I wanted to focus on stocks that have pulled back to a good potential Support/bounce area.
One stock that caught my eye was $DO and here area a few graphics to ponder:
RSI briefly tested the 30 level in March – look what happened after. RSI is back to arm wrestle the level again so I would look for history to rhyme. One additional data point I’ll add here: 22.6% short interest is some serious fuel for the fire if it can bounce from the Hammer it formed on Friday.
Someone was very hungry for the October $45 Calls on Friday …
For those that use Options as part of their trading process the situation of having an initial trade capped elicits a lot of different view points. I interact frequently with Option traders that focus a lot on avoiding this situation – but do they do the analysis to determine how often a price move actually warranted avoiding this in their trades?
Another element to capping that is often incorrectly stated – when a trade is actually capped. To illustrate what I mean let’s take a look at a Daily chart of $IBN:
I am long the stock at $43 since 05/05/2014 with short September $49 Calls (so these are Covered Calls). Is the trade “capped”? Let’s look at the crucial piece of data that will actually determine this: Options Net
For my trade, I have an Options Net of $4.27. So in order to determine the true capped price level of the trade you do the following:
Take the strike of the short Call: ($49)
Add the Options Net: ($4.27)
The resulting price is the true capped price level for the trade: $53.27
Price closed Friday at $51.97 so this trade is not actually capped
If you like to improve the probability of success in a trade it is important to have a solid disciplined approach for trading. Follow a routine. Keep doing what works. Stop doing what doesn’t work. This approach needs to include the review of relevant data to help support your thesis – whether Bullish or Bearish – and should include Option chain data.
Whether you actually trades Options or not.
I have been doing some normal chart & scan review this morning and noticed the Daily chart of $CAH:
What lead me to look at the chart in the first place was the following additional data:
1) It hit my Large Capscan this morning. Week Up, Friday Up
2) Look at the August Option chain information:
Well hello Option Volume at the $75 Call strike. And at the Ask.
I posted a trade idea on @Stocktwits earlier this week but wanted to follow up with a few data points. First, a look at the idea again:
Long the August 85/90 1×2 Call Ratio
Short the August 75 Puts
This trade closed at a $.20 debit Friday
This trade would take margin until the short Puts and one set of Calls are closed
Here is the Option chain info:
As you can see above, the August $90 Calls have the largest Open Interest by far.
Here is the Daily chart:
A few scenarios to consider:
1) price moves above the $85 level but avoids $90. StC the August $85 Calls when you see price stall for your time-frame. This would leave the short 90 Calls (2x) and the 75 Puts (a Short Strangle) until closed
2) price goes nowhere. No harm, no foul. The small debit for this trade is your cost to participate
3) price goes down to the $75 level (near the April lows). If you are comfortable owning there (you did sell the Puts at that strike) then let the stock get put to you