On Friday’s Options Action on CNBC I detailed a bullish trade idea in Macy’s (M) and described a position hedge for long holders of Facebook (FB) into next week’s Q3 earnings.
Cornerstone Research’s Carter worth gave his technical take on Reynolds International (RAI), and Mike Khouw offered a bearish options trade on how to play for a retest of the uptrend.
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Trade Idea – Macy’s Parade
M ($51) Buy Jan16 52.50 / 62.50 call spread for 2.50
Rationale – Vol is high, but in this case we can look out to January expiration for a 3 to 1 potential payoff on a move higher that retraces about 50% of the stock’s 30% decline from its all time highs made in July. While options prices have reached levels not seen in years, this has happened as the stock has gotten hammered despite what we see as a ton of potential positive catalysts to move the stock substantially between now Jan expiration. Considering how poorly the stock has acted since July, call spreads appear to be a much better way to be long Macy’s from a risk reward standpoint if it turns out we are in fact trying to catch a falling knife.
Read my post from RiskReversal.com here
Watch here:
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Hedge Idea – Facebook: Poke Even Higher?
Next week is FB’s moment of truth, as they are scheduled to report Q3 results on Nov 4th. The options market is implying about a 6% one day move which is rich to the 4 qtr avg of 3.25%, but shy of the long term avg of 8%.
Investors who have big gains in the stock, but don’t want to sell for tax reasons in 2015 may want to consider protecting gains into next week’s potentially volatile earnings event using a collar.
Buy Nov 110 / 95 Collar for Even Money
-Sell to open 1 Nov 110 call at $1.30
-Buy to open 1 Nov 95 put for $1.30
Read my post from RiskReversal.com here
Watch here:
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Mike’sTrade REYNOLDS OPTIONS (RAI – $48.50) Buy Dec 47.50 / 45 Put Spread for 70 cents
-BUY DEC 47.5 PUT @ $1.10
-SELL DEC 45 PUT @ $0.40
Break-even on Dec Expiration:
LOSSES ABOVE $46.80
PROFITS BELOW $46.80
PROFITS CAPPED AT $45
Watch here:
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