JC wanted to put this trade on yesterday (I think he did), but I wanted to wait until after the Fed announcement juuuuuust in case. You never know what shenanigans may take place on binary event risk days.
Well, my patience was rewarded. I am able to put the same delta-neutral credit spread on today at the same premiums that were offered yesterday, but now I don’t have to sweat the fed.
Consumer Staples stocks, as a sector, have been displaying relatively high implied volatility in their options and so I wanted a name from this space that was stuck in a range.
The candidate that we all agreed on was Proctor & Gamble $PG:
As you can see, $PG is stuck in the muck which makes it the perfect candidate for a high probability bet on premiums collapsing while the stock continues to consolidate in this range.
Here’s the Play:
I like selling a $PG December 140/155 Short Strangle for approximately $1.80 net credit. This means I’ll be naked short both the 140 puts and 155 calls in equal amounts:
Any $PG closing price below $142, the level that has acted as support repeatedly over the past 6 months, is our signal to close the trade down, win or lose. Conversely, any closing price above $155 (our short call strike) is a blaring signal that the range is breaking out and I’ll want to take the risk off the table, closing the trade down.
In the meantime, I’ll leave a resting order to close this spread for a 90 cents debit and book a profit. It is often my best practice to book gains on short strangles when I can buy them back for half of what I sold them for.
If you have any questions on this trade, please send them here.
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P.S. We do trades like this regularly. If you’d like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.
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