One thing I'm certain about, and that's that I don't want to buy SNAP stock here with its having whipsawed between 29+ and 19 in the short time since its IPO. But I might want to acquire it later once it settles down -- as with all things, preferably at a lower price than 22.74. A Poor Man's Covered Call gives me the flexibility to play SNAP, give me the option to buy it later by exercising the 15 long call before expiry, as well as to reduce cost basis in that long call while I'm waiting for it to figure out where it's going.
Consequently, here I'm thinking a Poor Man's Covered Call where the long-dated, back month, long option takes the place of long stock and (as with any covered call), the short call looks to reduce cost basis in the long option, while protecting the position from some downside. As with a covered call, you look to roll out the short option for duration, ideally keeping it clear of your cost basis, and you exit the trade for a credit that exceeds what you paid to put it on minus any credits collected due to rolling.
Metrics:
Max Loss/Buying Power Effect: $725/contract
Theta: 2.23/contract
Delta: 50.38
As with any diagonal (that's what this is, basically), we don't know much else about the setup in terms of potential profit, but I generally look to exit these north of 10% of what I paid to put them on.
Naturally, this is likely to continue to be somewhat of a roller coaster, so you need to be prepared for somewhat of a bumpy ride, particularly as price moves toward the long call side of the setup (since its delta long).
Notes: There is some piddling that needs to be done with these to ensure that the credit received for the short call exceeds any extrinsic value in the long option. The extrinsic value in the long option can be calculated by subtracting the difference between current price and the long call strike from what you will be paying for the long option 8.20 - (22.74 - 15) = .46. The April 21st 24 short call brings in .95 in credit at the mid, which is greater than the extrinsic value in the long.
Currently, the long option is bid 7.80/ask 8.60, so some further adjustment may be required during regular market hours to recalculate whether the extrinsic value received for the short exceeds that in the long and/or to get a fill.
Consequently, here I'm thinking a Poor Man's Covered Call where the long-dated, back month, long option takes the place of long stock and (as with any covered call), the short call looks to reduce cost basis in the long option, while protecting the position from some downside. As with a covered call, you look to roll out the short option for duration, ideally keeping it clear of your cost basis, and you exit the trade for a credit that exceeds what you paid to put it on minus any credits collected due to rolling.
Metrics:
Max Loss/Buying Power Effect: $725/contract
Theta: 2.23/contract
Delta: 50.38
As with any diagonal (that's what this is, basically), we don't know much else about the setup in terms of potential profit, but I generally look to exit these north of 10% of what I paid to put them on.
Naturally, this is likely to continue to be somewhat of a roller coaster, so you need to be prepared for somewhat of a bumpy ride, particularly as price moves toward the long call side of the setup (since its delta long).
Notes: There is some piddling that needs to be done with these to ensure that the credit received for the short call exceeds any extrinsic value in the long option. The extrinsic value in the long option can be calculated by subtracting the difference between current price and the long call strike from what you will be paying for the long option 8.20 - (22.74 - 15) = .46. The April 21st 24 short call brings in .95 in credit at the mid, which is greater than the extrinsic value in the long.
Currently, the long option is bid 7.80/ask 8.60, so some further adjustment may be required during regular market hours to recalculate whether the extrinsic value received for the short exceeds that in the long and/or to get a fill.