In case you haven’t noticed, we’ve been targeting some of the high fliers lately as it looks like their parabolic run has come to an end, at least for the time being. We’ve generally targeted them with a great structure that we like to go to in those type of situations, butterflies with wide ranges that center their targets on obvious areas of resistance or support. A couple of these names saw nice bounces off of recent lows yesterday, so it’s as good a time as any to consider our options.
Probably the biggest potential for large profits right now is Zillow:
TRADE: Z ($81.71) Bought Dec 80/65/50 Put Butterfly for 3.60
We initiated this trade when the stock was 81.71 before earnings, and since then it’s seen lower highs and lower lows. The sweet spot for this trade is 65 and since it is December, anything below 76.40 means the structure is rapidly gaining in the decay department, which is good for us. We’d love to see one more test of the recent lows and we would look to close this trade as close to that 65-70 range as possible. If the stock touched the rising 200 day ma around 68.50, we’d probably be out.
Yelp is in a slightly different situation as it is January expiration and is currently just out-of-the-money.
New Trade: Buy YELP ($65.55) Jan 60/50/40 Put Butterfly for 1.75
What that means is it actually has negative decay as long as the stock is above 58.25, but since it is January, we have alot of time for this to break its recent lows. The sweet spot for this trade on the downside is 50. Once again though, the stock has been making lower highs and lower lows, which has us optimistic and hanging on to this trade.
We initiated a GameStop trade yesterday with the idea that it has broken key support and we wanted to take a slightly bearish bet that immediately started collecting decay over the low vol holiday period we’re entering.
TRADE: GME ($48.15) Buy the Dec 21st 50/46/42 Put Fly for $1.26
This trade’s sweet spot is just slightly lower at 46 and as long as the stock is below 48.74 we continue to collect money on this structure.
The last position I wanted to talk about was one that we initially put on with the idea that the stock would be joining the other high fliers and we wanted a very bearish position that we would then look to spread on weakness. Pandora:
TRADE: P ($29) Bought Dec 29 Put for $1.60
We got this one right as it immediately fell, but it bounced like the others yesterday and we didn’t get the chance to spread it like we wanted to. We’d love to see this one come into support at 26.75, at which point we’d look to either spread it outright in December or even look to weeklies to do a diagonal. This one is at risk of decay anywhere above 27.40 so this is not one where we want to stay naked if the stock looks like it will go sideways for the next week or so.