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Another Interesting Short-Term Play on Aetna (AET):
This week, once again we are looking at Aetna (AET), a health care benefits company. If you check out its chart, you can see that it does not historically make big moves in either direction, especially down:
In spite of this lack of volatility, for some reason, IV of the short-term options is extremely high, 44 for the series that expires in 10 days. The company is trying to purchase Humana, and the justice department may have some objections, and there seems to be concerns how insurance companies will fare under the Trump administration, two factors which may help explain the high IV. Neither of the possible adverse outcomes are likely to occur in the next 14 days, at least in my opinion.
AET is trading at $122 as I write this. I think it is highly unlikely that it will fall below $113 in 14 days or above $131 when the 3Feb17 options expire. Here is a trade I made today:
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Buy to Open 10 AET 03Feb17 108 puts (AET170317P108)
Sell to Open 10 AET 03Feb17 113 puts (AET170317P113)
Buy to Open 10 AET 03Feb17 136 calls (AET170317C136)
Sell to Open 10 AET 03Feb17 131 calls (AET170317C131) for a credit of $1.48 (selling an iron condor)
There are 4 commissions involved in this trade ($1.25 each at the rate charged by thinkorswim for Terry's Tips subscribers), so the $1480 I collected from the above trade, I paid $50 in commisisons and netted $1430. The spread will create a maintenance requirement of $5000 less the $1430 so that my investment (and maximum loss if AET closes below $109 or above $136) is $3570.
If AET closes in two weeks at any price higher than $113 and lower than $131, all these options will expire worthless and there will be nothing more for me to do that decide how I want to spend my 40% gain.
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Of course, you could only do one of these spreads if you did not want to commit the entire $3570.
If AET moves quite close to either of these prices, I will send out another note explaining how I intend to cope with a possible loss. I hope and expect I will not have to do that. It is only 14 days to wait.
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Any questions? I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts. seth@terrystips.com
You can see every trade made in the actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here. Why wait any longer to make this important investment in yourself?
Even better, you can become a Terry’s Tips Insider, and receive all our educational reports and materials absolutely free by opening a new account at the best options broker around - thinkorswim. If you open an account with our link, they will give you 60 days of free trading or up to $600, the same deals they give to everyone who opens an account with them. You must use this link to sign up - open thinkorswim account – and once you have funded your account with at least $3500, email Seth@TerrysTips.com and let him know that you have done it, and this is what he will do – sign you for our Premium Service package ($119.95 value plus an extra 4 months of our Premium Service, valued at another $190.80). You get $300.65 worth of services without paying us one penny.
I look forward to having you on board, and to prospering with you.
Terry
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