TRADING IDEA: TWO BULLISH ASSUMPTION PLAYS IN DISH
DISH announces earnings on Tuesday before market open and is a state of high volatility (>50%). While you can naturally go with the plain Jane volatility contraction play around earnings (short strangle), there might be an opportunity here to catch it at significant lows while simultaneously taking advantage of risk premium present here which will lower your cost basis out of the gate.
The "Wheel of Fortune" Short Put
Sell the June 15th 32.5 Put (Neutral to Bullish Assumption)
Metrics:
Probability of Profit: 64%
Max Profit: 1.60/contract
Buying Power Effect: 30.90 (cash secured); 6.18 (on margin)
Break Even: 30.90
Notes: Look to either take profit at 50% max or run the contract all the way to expiry. If assigned, immediately proceed to cover at or above your cost basis (i.e., sell calls with strikes above 30.90). Proceed to work it as you would any other covered call. To bring in buying power effect somewhat, you can buy the throwaway 25 long for .15, which reduces the buying power effect to 6.05 in a cash secured environment (and reduces the credit received to 1.45 and changes your break even to 31.05); there isn't much advantage to doing that if on margin.
The natural alternative is to roll the broken short put out "as is" for duration and additional credit before taking assignment. Assuming you can get a decent credit to do that, this is usually to your advantage somewhat, since taking on stock is more buying power intensive than naked short putting on margin or uber wide long put vertical in a cash secured environment. In the latter case, you'll have to re-up on buying a throwaway long before rolling out the short to keep the buying power effect in check.
Synthetic Covered Call (Neutral to Bullish Assumption, But More Bullish than the Wheel of Fortune)
Sell the June 15th 35 put
Probability of Profit: 56%
Max Profit: 2.95/contract
Max Loss/Buying Power Effect: 32.05 (cash secured); 6.41 (on margin).
Break Even: 32.05
Notes: Look to take profit at 50% max or do the same thing as you would with the Wheel of Fortune trade, albeit with a less favorable break even. Consequently, it's a slightly more bullish play since you need price to stay above your break even (32.05). Buying the 25 strike throwaway long brings in the buying power effect to 7.07 in a cash secured environment.
* * *
I also looked at doing a Poor Man's Covered Call, but it doesn't look like that would be a more capital efficient setup (at least when I priced it out during off hours) than naked short putting on margin or going uber wide short put vert to bring in buying power effect in cash secured. Preliminarily, a 90/30 June/Sept Poor Man's, which would involve buying the Sept 20 long and selling the June 15th 37.5 short, would cost 13.40 to put on.
The "Wheel of Fortune" Short Put
Sell the June 15th 32.5 Put (Neutral to Bullish Assumption)
Metrics:
Probability of Profit: 64%
Max Profit: 1.60/contract
Buying Power Effect: 30.90 (cash secured); 6.18 (on margin)
Break Even: 30.90
Notes: Look to either take profit at 50% max or run the contract all the way to expiry. If assigned, immediately proceed to cover at or above your cost basis (i.e., sell calls with strikes above 30.90). Proceed to work it as you would any other covered call. To bring in buying power effect somewhat, you can buy the throwaway 25 long for .15, which reduces the buying power effect to 6.05 in a cash secured environment (and reduces the credit received to 1.45 and changes your break even to 31.05); there isn't much advantage to doing that if on margin.
The natural alternative is to roll the broken short put out "as is" for duration and additional credit before taking assignment. Assuming you can get a decent credit to do that, this is usually to your advantage somewhat, since taking on stock is more buying power intensive than naked short putting on margin or uber wide long put vertical in a cash secured environment. In the latter case, you'll have to re-up on buying a throwaway long before rolling out the short to keep the buying power effect in check.
Synthetic Covered Call (Neutral to Bullish Assumption, But More Bullish than the Wheel of Fortune)
Sell the June 15th 35 put
Probability of Profit: 56%
Max Profit: 2.95/contract
Max Loss/Buying Power Effect: 32.05 (cash secured); 6.41 (on margin).
Break Even: 32.05
Notes: Look to take profit at 50% max or do the same thing as you would with the Wheel of Fortune trade, albeit with a less favorable break even. Consequently, it's a slightly more bullish play since you need price to stay above your break even (32.05). Buying the 25 strike throwaway long brings in the buying power effect to 7.07 in a cash secured environment.
* * *
I also looked at doing a Poor Man's Covered Call, but it doesn't look like that would be a more capital efficient setup (at least when I priced it out during off hours) than naked short putting on margin or going uber wide short put vert to bring in buying power effect in cash secured. Preliminarily, a 90/30 June/Sept Poor Man's, which would involve buying the Sept 20 long and selling the June 15th 37.5 short, would cost 13.40 to put on.
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