Ever since F5 Networks (FFIV) announced earnings recently, it has been in a preciptous fall hitting recent low around $92.
Often, we are faced with the situations where we would like to play swing trades but we also don’t want to take unnecessary risk. Usually option traders play a swing trade either via selling call/puts or via opening credit/debit option spreads. These directional play, while good, at times provide little to no downside protection. What if our conclusion is wrong?
Here is another way to play a bullish swing trade on FFIV.
The trade is a Volatility Positive, Theta Positive trade and it will be hugely profitable if FFIV expires at 92.5 on Aug 19th. However, don’t count on that. Instead look for a quick 20-30% gains and move on to another trade. The trade will be profitable if FFIV remain between $88-$101 Aug expiration (and assuming greeks remains similar). As of this writing, FFIV was last trading at $93.5
Key things to watch-out:
Currently, Markets are experiencing volatility due to Macro Economic factors i.e. debt ceiling, ISM, unemployment etc and it is news driven. 1-2 std deviation daily move is not unthinkable. So one has to be on close guards on where to book profits or loss. If there is a sudden move in either direction, the trade will lose. However, if FFIV continues to swing, theta accumulation will make this trade profitable. Set your own target to exit.
Disclaimer: As of this writing, I don’t have any positions on FFIV. I may open/close any time without any notice. Pls do your due diligence before investing even a single $.