With Equities at All Time Highs Lets Explore PRG

Twitter@LoneStarQuant 

Overnight U.S. index futures rallied to all time highs with U.S. equity markets in the 6th year of a bull-run. I am going to be opening positions on PGR Friday morning using profits our position BDX opened in December.

The options chain is perfect for this particular pattern with contracts expiring in 80 days. I am going to combine a vertical spread with a call option, to create a unique payoff schedule using May contracts. Purchasing 5 OTM CALL options and selling 10 vertical spreads, I am able to still generate a net credit while purchasing contracts. See Below:

This is a position that, given the right price action, you collect time premium, long the stock, and in the event that there is an explosion then you will make a lot of money off the gamma obtained purchasing the 5 CALL options. Stay smart and trade safe!