Subject: Option Trade of the Week

Dear Friend,

This is our first Trading Idea of the Week for several months. We have been upgrading and improving our website, and the entire process took far longer than we had anticipated. (Isn't that usually the case?)

We have updated our Track Record, and are quite proud of two sets of numbers. First, the 5-year average annual gain of our actual 10K Strategy portfolios was 59%. Second, in this highly-volatile 2022 market environment when the indices were falling by 20% or more, our portfolios have enjoyed a composite 10% gain for the first quarter of the year. Since we kept an average of 50% in cash during this time, our actual gain on the amount at risk was about 20% in that quarter.

Terry

June 20, 2022

Week 674

Channel This

Roku (ROKU) is a stock many believe is in play as a takeover candidate. Netflix and Disney are potential suitors, among others. Whatever the rumor or sentiment, the stock has been flat for the past seven weeks, which is saying something. In fact, since April 27, ROKU is down 2.7% while QQQ has fallen more than 13%.

There’s no denying that ROKU has been a spectacular flop for the past year. The shares are down a whopping 83% from their July 2021 high. But the stock has held up well over the past couple of months with takeover rumors in the air. It may not be advancing, but it’s not falling either. Moreover, the stock appears to have found solid support in the 72-73 area, the site of a two-year low.

One way to see how the market feels about a stock is by looking at equidistant out-of-the-money put and call prices. Currently, calls are trading for more than their corresponding puts, suggesting that the market sees more risk to the upside. That is highly unusual in this market, where most everything has richer put prices. We are therefore trading a put credit spread with the short put strike below the recent two-year low level. .

If you agree that ROKU is in play and will continue sideways at worst, consider the following trade that relies on the stock staying above $70 through expiration in six weeks. Note that ROKU is scheduled to report earnings the day before expiration.

Buy to Open ROKU 29Jul 65 put (ROKU220729P65)
Sell to Open ROKU 29Jul 70 put (ROKU220729P70) for a credit of $1.50 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when ROKU was trading at $82.42. Unless the stock surges quickly from here, you should be able to get close to this amount.

Your commission on this trade should be no more than $1.30 per spread. Each spread would then yield $148.70. This trade reduces your buying power by $500 and makes your net investment $351.30 ($500 – $148.70) for one spread. If ROKU closes above $70 on July 29, both options will expire worthless and your return on the spread would be 42% ($148.70/$351.30).

Any questions? Email Terry@terrystips.com

Did you know that the actual 10K Strategy portfolios conducted at Terry's Tips averaged gains of over 100% in 2017, 2019, and 2020? The 10K Strategy consists of calendar and diagonal spreads which benefit from the faster decay rates of the short-term puts and calls which are sold (using longer-term options as collateral). You can learn all the details on how to carry out this strategy on your own by subscribing here. Select either Monthly or Annual, click on Sign Up Now and sue the Coupon code D21M for our monthly service for only $98,or D21Y to get a full year of our service for $980 rather than our regular price of $1970, then select Apply Coupon. Why wait any longer to make this important investment in yourself?

I look forward to having you on board, and to prospering with you.

Terry

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Happy trading,

Terry

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Subject: Option Trade of the Week

Channel This