LiveVol just released some new goodies for scanning activity and I thought it would be instructive to walk through one of the simpler scans.? With the market at all-time highs and volatility drifting lower, there is not much to note there.? We have liked the market this year and there is not much to change that.? So in a rising market is a buy write a good strategy?
In general a buy write has the same risk characteristics as a short put.? There is the positive decay the and generally bullish tone of the trade.? The only difference is that there is not an expiration cycle attached to the risk side of the equation.? This means if an investor wants to hold the stock the position makes sense.? If the investor does not want the stock, they are asking for trouble.? With that in mind I want to look at the LiveVol scan based on fat yields for buy writes.
?Livevol (R)?www.livevol.com
I have been following VHC since they lost the trial with CSCO and that ruling put a crimp in the revenue stream of the company.? No patent money and the earnings stream starts to get iffy.? ?Livevol is rightly noting that a sale of the Sep 19 calls will yield 29.1% if the name is called away if the close is above the strike at Sep expiration.? Note on the list there is JCP and SRPT, both names in the news for various reasons.? A look at the charts for VHC is helpful too.
?Livevol (R)?www.livevol.com
Note how VHC is still falling out of bed. ?A buy write as a strategy needs the stock to at least stop going down and as of this writing VHC has not found a floor yet.? VHC traded 16.18 today but has bounced little.? The yield is tempting but there is still some solid risk there even with the stock down $20 recently.? When looking at the screens make sure to check what is behind those big yields you see. ?Using scanning tools are great to parse through the information and get to interesting trades, but you might have to bend the trade a bit to make it work or simply pass.
The Trade
I don?t like the risk of a buy write in September in this name but a short put spread like the Sep 12/14 would offer good yield with much less risk for .80.? This is still a pretty risky trade but given the high IV the spread cuts down the risk quite a bit.
If you want to learn what all this means- This is the type of information we will train you to analyze in our?gold course. ?If you needed help following this trade, you should be in that course. ?Call us at 888 Trade 01 and ask for Taylor or Joel, OR visit our?mentoring page.