Perrigo has strong seasonal tendencies, so we are going to investigate opening a position based on the following pattern:
The objective of this trade is to structure a position that can be held for the next 70 days without purchasing call options and without using a vertical spread (bull-put spread).
Observing that contracts in May have a higher implied volatility than the rest of the summer contracts, you can sell the 160 strike PUT option expiring in May and purchase a 160 strike PUT option expiring in August, maximizing theta absorption. Opening such a position will leave you long the stock and allow you to collect premium. When opening and closing the trade you want to fill both legs simultaneously, with a close date on or before April 30, 2014. Exiting the trade is a bit delicate. Even if the stock rallies, you need to be prepared to close the position near $160. If you keep holding the position and the stock is at $170, you all of a sudden have lost money despite your directional prediction being correct.
Calendar spreads (and diagonal spreads) often have attractive properties. Anytime you are considering such a position, be sure to model it and check the greeks to make sure it offers the risk-to-premium you are looking for. Stay smart and trade safe!
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