TRADE IDEA: BMY MARCH/APRIL 45/52.5 UPWARD CALL DIAGONAL
Metrics:
Max Loss On Setup: $443/contract
Max Profit On Setup: $307/contract; $153/contract at 50% max for 34.5% ROC
Break Even on Setup: 49.43 versus 50.18 spot
Debit Paid to Spread Width Ratio: 59.1%
Theta: 1.22
Delta: 31.54
Notes: With earnings on Thursday before market open and the underlying at the low end of its 52-week range, I'm looking at taking a bullish assumption directional shot without putting a ton of risk on the line to do it (which is why, in part, I'm going March/April instead of my standard split month; longer dated back months cost more, since you'll need to widen out to get a favorable break even and/or a decent debit paid to spread width ratio). That being said, a lot of these look sexier during off hours than when New York opens, so keep that in mind. The setup, after all, is currently bid 4.12/mid 4.43/ask 4.74 (off hours), which is awfully wide ... . The natural alternative is to just short put at the March 45 (paying 1.10 at the mid), but that'll tie up around 8.75 in buying power on margin, with a return on capital of 6.3% at 50% max and invoke a full notional in cash secured of 43.89. This is basically why I like to go defined with a lot of stuff that I'm not interested in buying and holding -- better return on cap, less buying power deployed, similar or better gross profit metrics, particularly in small cash secured accounts where you haven't got a ton of cash sloshing around to do a short put/acquire/cover cycle.
Max Loss On Setup: $443/contract
Max Profit On Setup: $307/contract; $153/contract at 50% max for 34.5% ROC
Break Even on Setup: 49.43 versus 50.18 spot
Debit Paid to Spread Width Ratio: 59.1%
Theta: 1.22
Delta: 31.54
Notes: With earnings on Thursday before market open and the underlying at the low end of its 52-week range, I'm looking at taking a bullish assumption directional shot without putting a ton of risk on the line to do it (which is why, in part, I'm going March/April instead of my standard split month; longer dated back months cost more, since you'll need to widen out to get a favorable break even and/or a decent debit paid to spread width ratio). That being said, a lot of these look sexier during off hours than when New York opens, so keep that in mind. The setup, after all, is currently bid 4.12/mid 4.43/ask 4.74 (off hours), which is awfully wide ... . The natural alternative is to just short put at the March 45 (paying 1.10 at the mid), but that'll tie up around 8.75 in buying power on margin, with a return on capital of 6.3% at 50% max and invoke a full notional in cash secured of 43.89. This is basically why I like to go defined with a lot of stuff that I'm not interested in buying and holding -- better return on cap, less buying power deployed, similar or better gross profit metrics, particularly in small cash secured accounts where you haven't got a ton of cash sloshing around to do a short put/acquire/cover cycle.
Trade active:
Filled for 4.26/contract.
Trade active:
Rolling the 52.5 to the 50 strike for a .74/contract credit (didn't get the up move I needed); scratch at 3.69.
Trade active:
Rolling the March 50 down and out to the April 49 for a 1.04/contract credit; scratch at 2.65.
Comment:
One way to look at the trade is that I'm synthetically long stock at the long option strike (45) + the scratch point or 2.65 or at 47.65.
Trade closed manually:
All but scratching this trade out here for 2.71/contract. Got too aggressive with the short call rolling, and would rather not deal with the assignment risk (ex-divvy first week of March).
