Update – ADBE Stock Alternative

by CC April 7, 2017 2:16 pm • Trade Updates

On March 16th we previewed a stock alternative in Adobe (ADBE) into its Q1 results. The idea, like all stock alternatives into an event, was to mimic as close as possible upside reward while limiting downside risk. Here was the trade idea and rationale from the original post on March 16th:

And what about those looking to buy some of these high-performing stocks but terrified of this entry? Defined risk is possible:

Stock Alternative/ Replacement

In Lieu of 100 shares of ADBE ($122.10), buy the April 120/130/140 call fly for 3.00
  • Buy 1 April 120 call for 4.70
  • Sell 2 April 130 calls at .90 (1.80 total)
  • Buy 1 April 140 call for .10

The stock was higher following the report and on March 17th we wrote this update:

130 is a nice target on the upside to take the trade off it it reaches there. If the stock goes sideways or higher from here, that’s ideal and the more patience the better as that extrinsic value yet to be realized decays as additional profits.

The stock is now 130 and the original trade idea is now worth 7 or more than a double. Since it still has $3 of extrinsic premium (more can be made as the short 2x 130 calls decay) there’s no rush to take profits. But if the profits are enough as is that’s another story. For those that want to get closer to fair value, stops $3 below and $3 higher than the 130 strike makes sense, profits would not be that different than current if the stock made a move away from strike until outside that band.