I'm watching Twitter this week, If it breaks 55.70, and confirms, then I want to enter a trade to ride the stock to 64.20.
The strategy I would use to do this is a diagonal spread that would be set up as follows:
Buy Aug20 45 Call ask:11.25
Sell Jun16 62.5 Call bid:1.00
mid: $10.10
This analysis is based on the prices over the weekend at the current price and will obviously change some as the stock moves into position but here is my reasoning. This long call is at the .81 delta and has 3 months till expiration so it will suffer very little theta decay. It has an extrinsic value of $1.76 which is offset by the $1.02 of the short call. There is no penalty for waiting which is the main drawback for buying options.
If the stock price breaches the short call early then simply sell the spread for a profit. If it happens close to expiration then the short call can be rolled out and up to collect more premium and widen your spread. If the price never gets to the short strike the reevaluate and decide whether to close the position or sell another call that could hopefully offset the remaining extrinsic value purchased in your long option. The later would mean that after two months your break even would be around 45 so I wouldn't exit the position unless the stock went so low that selling the covered call would create a spread tighter than the cost bases.
Twitter is generally trending upward so I think there is a high probability that at worst you hold the long option for 3 months and sell away all, or more than, the extrinsic value and could profit from the sell of the long call before expiration even with a small dip in the price.
The strategy I would use to do this is a diagonal spread that would be set up as follows:
Buy Aug20 45 Call ask:11.25
Sell Jun16 62.5 Call bid:1.00
mid: $10.10
This analysis is based on the prices over the weekend at the current price and will obviously change some as the stock moves into position but here is my reasoning. This long call is at the .81 delta and has 3 months till expiration so it will suffer very little theta decay. It has an extrinsic value of $1.76 which is offset by the $1.02 of the short call. There is no penalty for waiting which is the main drawback for buying options.
If the stock price breaches the short call early then simply sell the spread for a profit. If it happens close to expiration then the short call can be rolled out and up to collect more premium and widen your spread. If the price never gets to the short strike the reevaluate and decide whether to close the position or sell another call that could hopefully offset the remaining extrinsic value purchased in your long option. The later would mean that after two months your break even would be around 45 so I wouldn't exit the position unless the stock went so low that selling the covered call would create a spread tighter than the cost bases.
Twitter is generally trending upward so I think there is a high probability that at worst you hold the long option for 3 months and sell away all, or more than, the extrinsic value and could profit from the sell of the long call before expiration even with a small dip in the price.