[Options] Auto Pilot?
Check out this chart of Autodesk $ADSK:
Here's what Steve Strazza had to say about it:
$ADSK is in a strong primary uptrend on absolute terms as well as relative to the broader market. Autodesk just broke out of a nearly 6-month consolidation at our prior objective.
It looks like it is ready to reassume its long-term leadership vs the overall market as well.
We want to own ADSK above 265 with a target at 351 over the next 1-3 months.
I agree with all this. But one thing Steve didn't mention is that great big round number (300) within shooting distance. I think that level acts as a magnet in the coming week/months and we're going to use that to our advantage.
My gut tells me we'll work towards $300, the stock will take it's time getting there, and once it gets there it may chop around a little bit. This feels like the perfect setup for a bullish Call Calendar Spread.
Here's the Play:
I like a $ADSK Jan/Mar 300 Call Calendar spread for $8.00 or better. This means I'll be short the January 300 calls and long an equal amount of March 300 calls for a net debit which represents the most I can lose.
(Edit: typo in image above, should read "Long March 300 calls")
You'll notice this is a bullish position -- until we get to the $300 level. Then we start to get on the backside of the slope and we don't want to be there.
Management of this trade will go as follows:
- At any time while still holding a full spread, we'll close this position if/when $ADSK trades to or through $300. This should result in a net profit, the size of which will vary depending on when the target price is hit (the closer to expiration of the short call, the better).
- If $ADSK takes it's time (which I think it might), when the short January 300 calls are offered for 25 cents or less, then we'll roll these short calls out to February (at the same 300 strike) for a net credit. This net credit will serve to lower our cost basis in this trade (this is a good thing).
- We'll then let the February calls expire worthless and hold on to the long March 300 calls to take advantage of the possibility of unlimited upside.
I'm willing to risk the entire initial debit that we'll incur at trade initiation, so there is no stop loss level that I'll adhere to. But it's safe to say if $ADSK can't hold the $250 level, then this trade is likely dead.
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