A tiny little bit option play

Here is my plan for THE stock

Assumption:

If the activist prevails, the stock should get a nice bump over 75 resistance. On the larger scale chart, there is a clear overhead resistance zone from 77-86. My best guess is it is going to at least re-visit that area. I didn’t do detailed research but I believe the 2010 peak of 86 bucks is also related to similar movement.

If they fail again, it should go down a little bit. Per my reading, the supports are 62.5-60 area, then the bottom zone of 50s.

 

Based off the reading above, here are couple possible plays.

1.      75-80 vertical

a.      Breakeven: 76

b.      Investment: 113

c.       Max Loss: 113

d.      Max Gain: 387 (3.4:1)

 2.      77.5-82.5 vertical

a.      Breakeven: 78

b.      Investment: 75

c.       Max Loss: 75

d.      Max Gain: 425 (5.7:1)

3.      Close stock long and short 62.5 put.

a.      Breakeven: 62.5 – 77.5

b.      Max Loss: unlimited

c.       Investment: 26

d.      Max Gain: 474 (18.2:1)

This is my favorite structure. If stock goes higher, my gain will be capped at 82.5 which I can totally live with. If stock doesn’t move after THE meeting, I will close with minimum loss of 26 bucks. My tolerable range expanded to 62.5. If the stock is going lower than 62.5, I will be assigned stocks. I will have to live with THE Ram Man’s guidance.

Overall I believe this stock still has good quality. I’m indifferent which side wins. I think in the long run it will do fine. If I can buy stock at 62.5, I will do it.

The 3^rd strategy needs margin as you could be assigned the stock. Theoretically the stock could go down to 0. The calculation is like this. If you plan to own 1000 shares of this stock in a long run, you should sell all current holding to avoid the downside, and open 10 combo. Meanwhile you should have 75K cash / margin in account to get ready for it.