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Top Trades for Mon, 15 Oct 2018 10:22 – MU

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Top Trades for Mon, 15 Oct 2018 10:22 – MU
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MU/Albo – Yes, it's in the LTP as a recent add and still playable:

Long Call 2020 17-JAN 40.00 CALL [MU @ $41.89 $-0.58] 20 8/17/2018 (459) $26,000 $13.00 $-3.53 $13.00     $9.48 $-0.13 $-7,050 -27.1% $18,950
Short Call 2020 17-JAN 55.00 CALL [MU @ $41.89 $-0.58] -20 8/17/2018 (459) $-10,000 $5.00 $-0.75     $4.25 $-0.20 $1,500 15.0% $-8,500
Short Put 2020 17-JAN 42.00 PUT [MU @ $41.89 $-0.58] -15 8/17/2018 (459) $-7,500 $5.00 $2.00     $7.00 $0.10 $-3,000 -40.0% $-10,500

Of course now we'll want to adjust it and 2021s are out so we'll probably roll the 2020 $40s at $9.50 ($19,000) to the 2021 $35s at $15 ($30,000) picking up $10,000 of intrinsic value plus a year for $11,000.  The short Jan $55s are still $4, so no way I'd buy them back and the short $42 puts are $7 and the 2020 $38 puts are $7 but still plenty of one-year premium in the 2020 puts, so no reason to change those either.  

As a new trade for the OOP, I want to take advantage of the short 2020 $55s at $4.50 so:

  • Sell 10 2020 $55 calls for $4.50 ($4,500) 
  • Buy 20 2021 $45 ($11)/$60 ($6.50) bull call spreads at $4.50 ($9,000) 
  • Sell 10 2020 $35 puts for $5.50 ($5,500) 

So we're starting this trade with a $1,000 credit and you have $31,000 upside potential if all goes well.  If MU goes higher, you're well-covered and can begin buying back short calls.  At $45, let's say they gain all $3 of the move and you buy back 3 for $7.50 – that's just $2,250 so you're in for $1,250 net and now triple-covered on the longs.  At $50 you buy back 3 more for $12.50 and that's $3,750 and you'd be then in the $30,000 spread for $5,000 with 4 short calls left against you.  

So the upside case is just fine and flat is fine and down is fine because you have a credit and the worst case is you have to roll the puts but, if you don't REALLY want to own MU for net $34 – why would you be in this trade in the first place?

Oh no, things are turning very ugly, Nas down 100 with AAPL down $4 (1.7%).