Yesterday we put on a bearish play in Zillow which was a little off our recent script of going after the momentum names that had already showed signs of breaking. Z has actually been bucking the trend and has been a riskier short than many other names like YELP, LNKD, NFLX etc. We got lucky on timing as the stock is having a bad day into its earnings and is down about 10% from our entry. To recap, here’s the Trade:
Trade: Z ($105) Bought to open May 100/80/60 Put Fly for 3.50
-Bought 1 May 100 Put for 4.90
-Sold 2 May 80 Puts at .77 each or 1.54 total
-Bought 1 May 60 Put for .14
Break-Even on May Expiration:
Profits: btwn 96.50 and 63.50 make up to 16.50 with max gain at 80 of 16.50
Losses: btwn 60 & 63.50 and 96.50 and 100 lose up to 3.50 with max loss of 3.50 below 60 and above 100
The structure is almost a double already, but none of that matters unless you sold it right here because after the bell the company will report earnings which should send the stock moving even more in either direction. If that binary risk worries you, now would be the time to take this trade off and walk with the profits. We’re going to risk the profits and let this ride as we feel paying 3.50 for this structure with the chance of the stock getting drilled down towards 80 is worth the risk. Selling half now is another option. If the company surprises there’s no reason why the stock couldn’t be back towards its highs near 110 tomorrow morning, but we like the risk reward of the chance its down even more from what we’ve seen in the last day and are willing to risk the potential loss.