Anyone thinking of playing for a OTM call expiration for Oct 9th? They're not that bad, since the SP has been stagnant for the last few days, and without a doubt Q3 P&D will be out by then. Even if not held till expiry, it could net a nice little profit of after market pop either on close of market on Thursday, or on Friday, and thus a possible Mighty Monday.
As a lead out, I don't buy short expiration long contracts (unless I'm intra-day swing trading, but usually then I'd prefer trading futures contracts) and I DEFINITELY do not EVER even
entertain the notion of letting a long call expire...
That out of the way, let's break this one down:
--It SEEMS like the delivery numbers are going to be good, so that's a potential good thing
--We're currently testing the top side of a symmetric triangle, which could be a good or a bad thing. We're more or less 2/3 deep into the triangle, which is about where you'd want to see the break.
--We've also seen 20MA provide support in the past couple days, which is a soft good thing.
--We know 450-460 is going to offer a bit of resistance, and then the ATH at 500 will offer stronger resistance.
--We know volatility is mid-range-ish for recent months, but we can also safely speculate that its likely to increase as we get closer to earnings.
--We also know earnings is a few weeks away.
IMHO:
--The above does add up to a potentially good trade
--A good entry would be on a clear break of the triangle (like, if there's a gap on the open tomorrow)
--Since we're so close to earnings, its extremely short sighted to not factor in earnings into any position
--A diagonal or horizontal is a better play than just a call
For the position:
--I prefer my long spreads with close expirations (less than 2 weeks) on the short leg, so I prefer Oct9
--Given likely upside price movement, something above 460 is a good strike for the short leg in that timeframe. I'd probably go 480.
--***For a Oct16 expiration I'd go higher--at least 500.
--I like NET Nov 6 as expiration for the anchor leg, as this envelopes any run up into earnings, including earnings week. Any closer and I don't like the theta burn, plus the closer expirations have worse ∆ than nov6.
--For a diagonal, I'd probably go ATM for the anchor leg strike price, but could also see something in the 460 range or so.
--For a horizontal I'd probably go with 480
For the exit:
--A good stop would probably be at or just below 20MA, with the logic that if it goes farther than that it will likely test the bottom side of the triangle (which is also 50MA, and would make for a potential re-entry point).
--Generally I protect all my positions at $0 once I make enough profit to be reasonably confident position value won't do a quick dip back negative. Its kind of hard to really nail down a number with spreads...this one kinda ends up being more gut feel than anything.
--The $0 stop loss also protects from a mega-spike in underlying which is especially necessary on a horizontal since the position's P/L comes back down pretty quickly on the way-upside.
--I'd further protect profit by increasing the stop as profit grows
--Assuming its a good trade with good return, I'd keep rolling the short leg out and up on Thursday or Friday (depending on residual value/theta) through earnings, in the same way one would roll a weekly covered call. Even if the short leg goes ITM, I'd stay in the position and keep rolling as long as the profit is there. The stop loss will take care of unexpected spikes.
--I'd almost certainly close out by 10/29 or 10/30, but would potentially contemplate reverse-split-rolling the whole thing out while simultaneously taking profit. For instance, if I had 20 spreads, I might reverse split them into 3 or 5 spreads but with farther expirations, while also realizing 50-75% of the initial position's profit.
For funsies, here's the P/L for the 480 Oct9/Nov6 horizontal, at least if you bought it right now (I'm not). Remember that stop is ~$410 on the underlying (or even $405) so loss is realistically on the order of $200-300/spread, against an entry requirement of ~$2400. If you got REALLY lucky and nailed 480 you might double your money (remember that volatility is more likely to go up, so the whole P/L will shift up accordingly), but pretty much anything in the ~$450-530 range is going to return 10% on capital in a week and a half, and that ain't bad...
. Actually straddles might not be a bad option for Oct 2nd expiry.
