Featured Blogs

Trade Breakdown: SPCE Strangle

After a successful test flight on Saturday, SPCE gapped up and opened at 25.25. We mentioned in the morning to keep an eye on the 50 and 200 SMA on the Daily Chart as support and resistance, and so far it seems investors are undecided on what to do with this stock after being up $4. The 50SMA is currently trading at around 24.75 and if SPCE dips below this level look for some good support at the 24’s.

SPCE Daily (TC2000)

Set Up

For this strategy we are looking to sell into strength. After a large gap up and Bullish speculation, the stock has seemed to flatten out. Instead of being directional here and playing the Bear Call Spread, what we are going to do is look to sell a skewed Short Strangle. Because of the gap-up we have some good premiums to be found in the Call side here, yet they is still some IV to be sucked out on the put side as well. SPCE long term seems overall bullish here and is cheap enough where we won’t mind owning the stock if we do get assigned.

We are going to go out to the June monthly expiration where we have raw IV of 119% and around a $5.50 expected move. We are going to sell the 20 Put and sell the 35 Call in here and will look to receive around $1.50 in credit.

How This Strategy Works

This strategy does give us a little bit of short delta, but still keeps our win rate above 70%. This strategy will realize full profit of $1.50 if SPCE expires between 20 and 35 with the breakeven’s being at 18.50 and 36.50. Our max loss on the Puts will be getting assigned 100 shares at $20, with the max loss on the Calls being undefined, as we are unsure exactly how high SPCE could go by June 18th expiration.

All in all this is close to a delta neutral strategy that is taking advantage of the Call Skew found off the gap-up with time decay working in our favor.

Similar Posts

Leave a Reply