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TERRY’S TIPS STOCK OPTIONS TRADING BLOG

June 6, 2024

June 5, 2024 Terry’s Tips Trade Alert – Wiley Wolf Portfolio


We are closing put spreads to increase delta:  

BTC 1 MSFT 21Jun24 402.5 put (MSFT240621P402.5)
STC 1 MSFT 19Jul24 435 put (MSFT240719P435) for a credit of $15.35 (selling a diagonal) (100%) 

BTC 1 MSFT 21Jun24 405 put (MSFT240621P405)
STC 1 MSFT 19Jul24 430 put (MSFT240719P430) for a credit of $11.90 (selling a diagonal) (100%) 

Be prepared to change this (these) price limit(s) by $.05 or more in order to get an execution.

Happy trading.

Jon

June 1, 2024

May 31, 2024 Terry’s Tips Trade Alert #3 – Rising Tide Portfolio


This completes rolling out and adds two call spreads
:    

BTC 1 COST 31May24 795 put (COST 240531P795)
STO 1 COST 21Jun24 800 put (COST 240621P800) for a credit of $13.45 (selling a diagonal) (100%)

BTO 1 COST 19Jul24 830 call (COST 240719C830)
STO 1 COST 21Jun24 830 call (COST 240621C830) for a debit of $7.00 (buying a calendar)

BTO 1 COST 19Jul24 810 call (COST 240719C810)
STO 1 COST 21Jun24 810 call (COST 240621C810) for a debit of $8.70 (buying a calendar)

Be prepared to change this (these) price limit(s) by $.05 or more in order to get an execution.

Happy trading.

Jon

April 1, 2024

April 1, 2024

Fool Me Once …

There was nothing on the weekly earnings docket that I considered trade worthy. Even the few names I recognized were either too low-priced, had lousy options or bid/ask spreads, or, most importantly, not giving me a good chart read. During slow earnings periods – which include next week and most of the following week – I look back at past trades to see how they look today. One that I like just happens to be the last trade we closed for a loss. But I whiffed so badly on it – I suggested a bearish trade and the stock cruised 20% higher – that I now like it as a bullish play.

The stock is Veeva Systems (VEEV), which provides cloud-based software for the health sciences industry. VEEV reported solid earnings results in late February, beating estimates on revenue and earnings per share. Guidance for the first quarter came up short on revenue, which may be why the stock stumbled a bit after the report.

Analysts were very clear in their view toward VEEV, handing the stock a boatload of target price increases. Maybe they’re trying to play catch-up because the current average target price – after all the increases – is right around Thursday’s closing price. Given that VEEV is a tech stock (though it’s considered in the healthcare sector), that’s an underwhelming endorsement for a stock that’s rallied 40% in less than four months. It’s not hard to see how more target price increases and perhaps a ratings change or two (the current average rating is a buy) could be in the offing.

There aren’t many charts prettier than VEEV’s daily chart. The stock has climbed steadily since an early December low, riding along the solid support of its 20-day moving average. How solid? The trendline has been tested no less than a half-dozen times and has allowed just one daily close below it. This trade is based on the uptrend and support continuing for the next several weeks, perhaps aided by some analyst love.

The 20-day moving average sits just below the 230 level, while the 50-day is at 220. VEEV offers only monthly options, with strikes every 10 points within the range we want. Therefore, I am forced to go with the May series and the 220 short strike. This is producing a little less credit – and thus return – compared to our usual trades. But that means the short strike is further out of the money (less risky).

If you agree that the stock will continue to trade above its 20-day (blue line) moving average, consider the following credit spread trade that relies on VEEV staying above $220 (red line) through expiration in 7 weeks:

Buy to Open the VEEV 17 May 210 put (VEEV240517P210)
Sell to Open the VEEV 17 May 220 put (VEEV240517P220) for a credit of $1.80 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $231.69 close.   Unless VEEV surges at the open on Monday, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $178.70. This trade reduces your buying power by $1,000, making your net investment $821.30 per spread ($1,000 – $178.70). If VEEV closes above $220 on May 17, the options will expire worthless and your return on the spread would be 22% ($178.70/$821.30).

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