Sunday, July 20, 2014

Long/Short Setup on Optionable Stocks

By Jon Haghayeghi | Twitter@LoneStarQuant

We are running a scan of optionable securities with market capitalizations larger than 10 billion dollars. Two trades stand out - AMGN long and GLW short.

Amgen is currently priced at $118, with a high of $129. The stock has a strong upward trend, having more than doubled in price since 2012. This is also a low beta stock, so its performance is not closely tied to that of the broad market. 

For this trade you can sell a vertical put spread expiring in October, purchasing the 115 strike and selling the 120 strike options. A single contract with generate premium of about $250 risking $250.

GLW is a short candidate with a 42 day duration.  You can use weekly options and sell the August 29th vertical call spread. With the spot price at $21.84, you can sell the 21.50 strike and purchase the 22.50 strike call option collecting $50 and risking $50. 

My portfolio is still skewed long because of FED policy, that said, geopolitical/credit risk is increasingly concerning. Stay smart and trade safe.