[Options] No Longer Exiled on Main Street
Here's the chart of Main Street Capital Corp $MAIN:
If you squint, you can see recent trading action is forging into New All Time Highs territory! And it feels to me like this is a stock that few people are aware of.
Unless, of course, you're an All Star Charts subscriber and read the Minor Leaguers report!
This company is engaged in the "acquisition, development, and repositioning of office, industrial and multi-family properties." Ok, so real estate. Got it.
Here's what the ASC team had to say about $MAIN:
Main Street Capital has been grinding steadily higher off its 2020 Covid lows and just exploded to fresh all-time highs Friday. Despite already rallying over 200%, we see no reason why MAIN shouldn’t continue its upward ascent.
MAIN has gone sideways on both absolute and relative terms for most of this year. However, there’s evidence this is likely to change, as it’s currently pressing on the upper bounds of its range versus the broader market while price resolves higher on an absolute basis. If this is a valid breakout for MAIN, we expect the relative ratio to follow suit.
We want to be long MAIN above 45.30 with a target of 64.50 over the next 3-6 months.
Not that I really care about such things as an options trader, but this sneaky little company that's hiding in plain sight pays a monthly dividend that is yielding more than 5.5% annually!
Breaking out to new all-time highs and paying a healthy dividend? What's not to like if you're bullish?
Both the stock and the options here are a bit thinly traded, but the bid/ask spreads on the options are tight enough that I feel like we can get in at fair prices if we keep it simple.
Here's the Play:
I like buying $MAIN June 50-strike calls for 80cents debit.
The bid/ask spread for this particular call option as I type this is bid 60 cents, offered 80 cents. The Open Interest is only 187 contracts, so I think I'm just going to hit the offer at 80 cents with the explicit understanding that if we're wrong in this trade, then there's a high probability of losing a large percentage of our investment as we'll have to hit the bid to get out.
I'm ok with this. I'll simply size my position under the assumption that if I lose, I'll likely lose all of it. So, in many ways, this is an "all-or-nothing" trade. That's cool. We know this going in.
If $MAIN continues to build on its breakout towards the ASC price target of $64, then we should have plenty of opportunities to reduce risk along the way.
My plan is this: If we see a double in the value of these options, I'll sell half of my position to take my original risk off the table. So I'll leave a resting order to sell half at $1.60. If we're fortunate enough to get that fill, then I'll continue riding the remainder into June and enjoy my potential for "unlimited" gains, while knowing the worst-case scenario from here is the options expire worthless and the trade turns into a net scratch. Better than losing! :)
If you have any questions on this trade, please send them here. Me and Steve Strazza will be live streaming on twitter later today (around 2pm ET) to discuss this trade. Tune in!
ASO subscribers who missed last week’s live Jam Session can catch it here.
P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free!