Second-quarter earnings season is kicking off, but Altaba Inc. (AABA) -- the entity formerly known a...
Bullish Option Play Is in the Pipeline
10/24/2011 11:26 am EST
Shares of this oil services company are again testing a recent high, and if resistance is overcome, option traders can use a put spread strategy to capitalize on the likely upside move from there.
Atlas Pipeline Partners (APL) is testing resistance at $33.15 for the third time-a triple top. As it arrives there, it has a Relative Strength Index (RSI) that is trending higher and is above 60 and a Moving Average Convergence Divergence (MACD) indicator that is positive, but may be starting to fade. These could be a bit stronger but still support more upside.
See related: Demystifying the MACD
If APL can get over $33.15, it has resistance higher at $34, followed by $35.20 and $36 with a measured move (MM) higher at $40.00, as calculated from the double-bottom area near $27. Enter long on a break over $33.15 with a 2% trailing stop, taking some profits at a touch of $35.20.
For an options play, consider either a November 34/27 or 35/28 bullish risk reversal using the same trigger of a move of the stock price above $33.15. Using the 34/27 to illustrate, you would buy the November 34-strike call (offered at 75 cents near the close on Friday) and sell the November 27-strike put (bid at 25 cents near Friday's close) for 50 cents.
This spread carries about a 45 Delta, meaning that a $1 move higher in the stock to $34.15 would add 45 cents to the trade (to 95 cents), and to the $35.20 resistance, it would be worth near $1.40.
See related: How Delta Affects Option Profits
Being short the put exposes you to owning the stock if it closes below $27 on expiry, November 19, and uses margin. It can also be done as a cash-covered put sale in retirement accounts.
By Greg Harmon of Dragonfly Capital
Related Articles on OPTIONS
Lowell Enlow was a contractor for NASA and operated several insurance agencies in Florida. Nick Morr...
For some traders, binary options can seem like an attractive way to make money. But like any trade, ...
This is a rebroadcast of OICs webinar panel. In this deep dive discussion, Frank Fahey (representing...