A day late, and perhaps a dollar shy (after all, options do decay with time), but I do want to update the faithful with a recap of last Friday's show.
The market continues to melt-up, a phenomenon that has made a couple of our traders decidedly nervous. And while prices for puts have declined with the fall in overall market volatility, they're still not cheap. We that in mind, out guys struck a decidedly bearish tone, and offered up some simple trades to protect yourself and profit in this tape.
Stacey kicked it off with a simple overwrite against Norfolk Southern stock. Specifically, she recommended selling the September 50-strike call for $0.85 against a long position. The trade provides upside to about $50.85, and downside protection to $46.45 from the premium collected on the sale. And if nothing happens, she keeps that $0.85, proving that with options, you can make money if a stock goes up, down or even nothing.
In the second trade, Dan "Put of the Risk," and offered up a trade that would protect your portfolio against a 20% decline in the S&P, and he did it for $0.30.
Magic say you?
It was actually just a 1X2 put spread on the SPY, where he bought the December SPY 100-strike put for $5.30 and then sold two of the December SPY 90-strike puts for a total of $5.00, net-net paying $0.30. The trade is most profitable if the SPY hits $90 by December. Below that, you will get stock put to you, making this a margin intensive trade. The payoff trials off below the $90 level, but you don't begin to lose money until $83, or 20% lower from here.
In the award-wining "Put Up or Shut Up," Mike and Dan duked it out on Dell. They nailed Target the week before, and hopefully will have a similar outcome this time around. Mike simply bought the September 15-strike call for $0.45, a trade that pays out if Dell trades above $15.45. Dan didn't know which way Dell would trade, so he went instead for the September 15/14 strangle, paying a total of $0.95 for a trade that becomes profitable if Dell stock trades above or below $15.90 or $13.10. One name, two strategies, and hopefully, two payouts.
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