In the file of better late than never, thought I'd post Friday's picks from Options Action.
As a bearish bet on the financials, (or a wager on the collective insanity of the ratings agencies), Dan Nathan of Riskreversal.combought the January 35/30 put spread on Deutsche Bank for $1.10, a trade that could be worth as much as $3.90 if DB trades below $30 by January expiration.
Trade and breakdown are below.
DAN'S DEUTSCHE BANK OPTIONS TRADE - STOCK AT $40
- BUY JAN 35-STRIKE PUT FOR $2.20
- SELL JAN 30-STRIKE PUT FOR $1.10
HOW DAN'S DEUTSCHE BANK TRADE MAKES MONEY
- LOSSES ABOVE $33.90
- PROFITS BETWEEN $33.90 - $30.00
- PROFITS CAPPED AT $30.00
The other trade required much less premium but carried much greater risk. It came courtesy of Oppenheimer's Carter Worth and Cantor's Mike Khouw. As a bullish play on retailer Target , they bought the January 46/57.5 risk reversal for even money. Specifically, the trade involved selling the January 46-strike put for $0.25 and using that money to buy the January 57.5-strike call for $0.25. The trade costs nothing, but there is a significant tradeoff; by selling that put, Mike could be forced to buy target stock at that put's strike price - or for $46, even if it falls well below that level by expiration.
So far so good, and the trade and breakdown are below.
MIKE'S TARGET OPTIONS TRADE - Stock AT $53
- SELL THE JAN 46-STRIKE PUT FOR $0.25
- BUY THE JAN 57.5-STRIKE CALL FOR $0.25
HOW MIKE’S TARGET TRADE MAKES MONEY
- PROFITS ABOVE $57.5
- GET LONG $46.00
- LOSSES BELOW $46.00
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