It's more than a motto; it's a way of life on "Options Action." We like to risk less to possibly make more. And last week, Dan Nathan - chief options strategist at Phoenix Partners Group nailed it with Intel . He bought the October 19/21 risk reversal, selling the Intel October 19-strike put for $0.15 and used that money to buy the slightly out-of-the-money October 21-strike call for $0.30, net net, paying $0.15 for a structure that would get him long at two points, $21.15 and $19.15.
"Worst case scenario, you get long down 5%. Most the news was out there. That's a good risk-reward," said Nathan.
Overall, the strategy is a decidedly bullish trade intended to take advantage of a sharp move higher.
And that's what many options traders were expecting yesterday, as they bought huge amounts of calls at a number of different strikes and expirys in hopes of an earnings blowout.
And that appears to be exactly what they, and Dan, got. Intel crushed on both the top and bottom-line, and not only was the guidance good, but gross margins were also significantly better than expected. And this all comes as the stock has had a massive run into earnings.
So what to do now?
Well, the stock has given up some of its after-hours glow and is trading only 2% percent higher. But with the collapse in volatility, those 21-strike Intel calls can only be sold for about $0.30. Not exactly the move we were hoping for, but here's where it gets interesting. That 19-strike put that Dan sold to finance the trade is going for about a penny, meaning that had you put the trade on, you would be able to exit the trade with a $0.15 profit, or nearly double your money. Again, not really the move we were hoping for, but certainly better than a sharp stick in the eye.
Still, in spite of the gains, Dan wants to let in ride, especially with some two major catalysts ahead.
"Let's see what Google and IBM earnings bring to the tech space," said Nathan.
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