NaughtyPines
Long

TRADE IDEA: MAT APRIL 18TH 15/15/17 BIG LIZARD

NASDAQ:MAT   MATTEL INC
Metrics:

Max Profit: $223/contract ($56 at 25% max)
Max Theoretical Loss/Buying Power Effect: $1277 (stock goes to 0); $1277 cash secured; ~$300 on margin.
Break Even: 12.77/share (7.6% discount over current price if assigned on the 15 short put); no upside risk
Delta: 43.26 ( bullish assumption)
Theta: 1.09

Notes: I wasn't happy with what my screener was showing me for things to play this coming week, so figured I'd scrounge around for a few underlyings with high implied volatility that have earnings in the rear view mirror. One of these is MAT (50/58), which got taken to the wood shed last week.

Pictured here is a "Big Lizard" (Who comes up with these names?) that consists of a short straddle and a long call where the width of the short call vertical aspect (the short call + the long call) is less than the total credit received for the entire setup. Put another way, the risk associated with the short call vertical aspect ($200, since it's a 2-wide) is less than the total credit received ($223) so that if the underlying takes off like a poo rocket and breaks through the long call, you can still make money to the extent that the total credit exceeds the width of the spread (2.23 - 2.00 = .23). Ideally, however, you want price to remain between your break even of 12.77 and the short straddle at 15.00.

Obvious alternative plays:

The April 18th 13 short put, .62 credit, break even of 12.37 (a discount of 10.5% over current price), delta 33.95, theta .81.
The April 18th 15 short straddle, 2.56 credit, break evens of 12.44/17.56 (a discount of 10% over current price if assigned on the 15), delta 22.67, theta 1.8.
Comment: As with EA, wide markets. Sometimes things look promising on paper, but not so promising when markets open ... . Poor liquidity is an idea/trade killer.

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