[Options Premium] Growing Into the Bigs

Sean McLaughlin
July 23, 2021

So Steve Strazza hit me up yesterday with: "Have you seen our latest 2-to-100 Club report? All of those stocks are breaking out!"

When Strazza gets giddy about price action, I take notice. Of course, I had to pull it up and scan the list. And sure enough, every one of those names is moving in the right direction. Some already moved so quickly that I'm going to hold off for a better possible entry point. But one of those names just triggered yesterday and is giving us a well-timed pullback today for us to get positioned.

Here's the chart of mobile software company Asana, ticker $ASAN:

Do you see what I see? I'm seeing a nice base that we just broke out of which can be the springboard for a run at a "hundred-dolla-roll"!!

Here's what Steve Strazza had to say about $ASAN:

Price has been coiling in a tight consolidation at our most recent objective of 71 for the last few weeks. We’re seeing the same kind of continuation pattern play out relative to the broader market in the lower pane.

Both of these patterns are likely to resolve in the same direction – and considering the underlying trends are up and the stock has been a clear leader since coming public, we have no reason to think it won’t carry on higher from here.

Either way, we’re going to make Asana prove itself to us and only want to be buyers on continued strength above 71 with a 2-4 month target of 99.

We need as many as 4 months for this idea to play out, so that has us on the hunt for November options.

That price target smells an awful lot like a "hundred-dolla-roll" to me. And since options aren't terribly cheap here (in volatility terms), I'm looking for a spread to participate in this potential move.

Here's the Play:

I like an $ASAN November 75/100 Bull Call Spread for an approximately $5.80 debit. This means I'll be long the 75 calls and short an equal amount of 100 calls and the debit I paid is the most I can possibly lose in this trade.

The nice thing is, we don't have too far for this stock to move to signal to us that we're wrong. So it if reverses quickly on us, I expect any damage will be somewhat limited. If we see $ASAN close below $69 per share at any time during our hold, that will be our signal to cut the trade and limit our loss.

On the profitable side, I'll be looking to close this spread for a $15.50 credit. This would represent a more than doubling of our invested capital and a capture of slightly more than 50% of the maximum potential profit if held all the way to expiration.

If you have any questions on this trade, please send them here.

~ @chicagosean

 

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