SPCE : Lather-Rinse-Repeat
Updated: Jun 8, 2021
Traders shouldn't fall in love with specific stocks. However, when you get a "feel" about a stock, that keeps on doing the same patterns, you must generate some low risk ideas about how to trade it.
In the previous posts, I showed you how I traded SPCE (Virgin Galactic Holdings) over the last year:
Swing Trade with Options: SPCE (Virgin Galactic Holdings).
Deja Vu - SPCE
RLFF Mean Reversion -SPCE
And so, the same old support was hit again, and options prices becoming interesting once more ….
Looking at the 65min chart, I could time my entry using the SSC technique.
I could buy 20 call18 for 1 month at 1.2$ (2.4K) which gives me the right to buy 2000 shares of SPCE at 18$ each for the next month. Given the historical volatility of that stock, it didn't seem unreasonable to give it a target of 26 (1 : 5.6 R:R ratio). In my opinion, this is how low risk idea looks like.
A few days later, as I watched the pre-market action, I was pleased to see SPCE going up 20%. The news were that they scheduled a test flight to May 22.
When the market gives you a gift, it is not the time to start to dream about big winners. I didn't find the news to be so dramatic (it was already up 20% !!!) , and decided to sell 2000 shares at 20.5 at the pre-market session, which is locking-in 2.5$ per option and benefiting even more if it goes under 18.
The stock begin the session high at started to go down to 19, where I bought 1000 back, and waiting with the other 1000, hoping to buy at 18.
Then, the stock reversed and started to go up again, so I covered the rest of my short at 20, which mean I took out almost all of my initial risk (2k) and decided to stay with the options for a swing up.
The next when SPCE continued to go up, I decided to lock-in more gains, by selling Call26 for 1.35$ (2.7K) and creating a vertical spread (18/26) that can pay up to 8$ (16k) if SPCE will be above 26 at expiration date (about 1 month).
The reason for moving into spread, is that I don't want to take the risk if something bad will happen tomorrow with the flight test. I don't want to end this trade without any profit. However, I still give this position the opportunity to run and give me great profits. (this can still become a 6.5R winner).
To the moon...
May 24th update:
After a successful flight test, SPCE was trading more than 30% up in the pre market. When it started the session it gave back half of the gains, but looked very strong. I decided to close the upper leg of the spread (c26) for a 0.85$ loss (2.2$) , and let the C18 run.
Later the stock started to go up again, all the way back to 28%.
Here, I locked-in gains by using the Collar strategy. Buying put 25 and financing it by selling Call 31. I also sold put 18, because I don't need the protection under 18. And so, for no additional cost added I locked-in the spread between 18 & 25 (7$). If there is going to be some kind of a surprise secondary offering, I won't loss all of the profits.
As for the upside, I can still let it run and profit all the way up to 31 (call 18 to 31 spread) which will pay 13$ (26K).
5R in hand & potential for 10R.
May 28th update:
Buying put27 selling put25 at a cost of 0.5$. Locking-in another 2$ payout.
Now, the 18-27 spread is secured.
Jun 8th update:
And rolling the put27 to put31. 1 synthetic long on 18 strike and 1 synthetic short on strike 31. The box is closed.
The following trade frame is an example for educational purpose only.
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