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Senior Producer
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 [INTC
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]. 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.
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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 [GOOG
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] and IBM [IBM
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] earnings bring to the tech space," said Nathan.
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Data is a real-time snapshot *Data is delayed at least 15 minutes