[Options] Ice, Ice, Baby
This is the type of blue skies breakout that we love to participate in.
Currently, with earning on the horizon soon, the premiums in $ICE options are starting to get a bit elevated. So buying naked long calls isn't the move for me -- too expensive.
I'll look to lower my cost of participation by turning a long call play into a spread.
Here's the Play:
We're buying the June 100/110 Bull Call Spread for approximately $2.20. This means we'll be long the 100 calls and short an equal amount of 110 calls. The cost is a debit and represents the most we can lose in the trade. $ICE could go to zero tomorrow (it won't), but the most we'd lose is the premium we paid to enter the trade.
Regardless of what happens coming out of earnings, I'll look to close this trade if $ICE ever closes below 91.50. If that happens, I'll sell the entire spread for whatever I can salvage (if anything).
On the flipside, if $ICE continues and builds upon it's breakout, I'll look to close this spread around $6.50. This would mean I've captured a little more than half of the maximum available profit and I'm good with that. I don't like holding until the bitter end (expiration) and leaving myself exposed to a market reversal and seeing all of my open profits evaporate. No bueno.
If we're still holding this spread when the calendar peals away to June 1, then I'll look to exit the trade on any break of near-term support.
ASO subscribers can email me here with any questions during the life of this trade.
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