[Options Premium] Fix Me Up
Check out this chart for Stitch Fix $SFIX:
This is a solid base we're now emerging from. Here's what Steve Strazza had to say about it:
...we have a big gap lower, followed by a basing pattern that price is now resolving higher from. Buyers have given a shot at the 30-32 level multiple times during the past two years, only to be rejected over and over.
It looks as though SFIX finally just made a sustained breakout above this resistance level. We like SFIX long above 32 with a target just above 52 over the next 3-6 months.
I like the time frame Steve proposes for this run. To best take advantage of this with options, we're going to look at a call spread in March options to give us every opportunity to play along without paying too much for the calls which are showing some elevated premiums right now.
Here's the Play:
I'm buying a $SFIX March 35/45 Bull Call Spread for a $3.30 debit or cheaper. This means I'll be long the 35 calls and short an equal amount of 45 calls. The most I can lose is the debit I paid upfront, so I'll size my position accordingly.
Going forward, $30 is the price level I want $SFIX to stay above. If we see a close below $30, then that'll be my signal to exit the trade for whatever I can salvage. If that happens, this means we're too early.
On the other hand, if the ASC 3-6 month price target plays out, then we'll have plenty of opportunity to take profits on this spread on the way up. I'll look to close this spread at around a $6.60 credit. This would represent both a doubling of my invested money and also a capture of 50% of the maximum possible profit in the trade (profits are capped at our short 45 strike). While this March spread gives us plenty of time for our thesis to play out, I have no interest in holding the position that long if I don't have to. I'd rather take the easy money on the way up and then redeploy the capital into new trades.
If you have any questions on this trade, please send them here.