[Options] The Boys Are in the $HOOD

Sean McLaughlin
August 24, 2022

That's right, we're in the 'hood. Robinhood stock $HOOD, that is.

Steve Strazza has been pounding the table about this name for so long that JC and I finally relented and agreed that it's starting to become that "put up or shut up" time.

With the stock swimming just below $10 per share, JC said: "Let's just leverage into this thing! If it's gonna work, we'll crush it. If it's not going to work, we'll know pretty soon. Below $9 we're out."

Here's the chart that has our attention:

The AVWAP from all-time lows is our support.

Right on. High potential reward for limited risk is my kind of play.

So we're going to play this one with a Bullish Risk Reversal, having naked short puts pay for our long calls exposure.

Here's the Play:

We like entering a $HOOD January 9/10 Bullish Reversal for as close to a net zero cost as possible. This means we'll be naked short the Jan 9 Puts and we'll be using that premium to pay for an equal amount of long Jan 10 calls. At current prices, we should be able to put this spread on for about +/- 5 cents. But the net amount is not too important here. We want to be as close to a zero cost, or even a small net credit as possible.

The defense here is simple: If $HOOD closes below $9.00, then we're wrong. Or early. No matter, we're closing the entire spread down to limit the potential of any further losses.

On the upside, if/when we get an opportunity to sell half of our calls at a price that is double the current value of our short puts, we'll sell 'em and use those proceeds to close (cover) our entire naked short puts position. This trade should cost us close to nothing, perhaps even yield us a small credit. At this point, we'll be left holding half of our long calls and our cost basis will be zero (perhaps even a net credit!).

Essentially, we'll have a #FreeRide on any climb $HOOD does from here into January. Sweet!

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

ASO subscribers who missed last week’s live video Jam Session can catch it here.

~ @chicagosean

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! Or give us a call to learn more: 323-421-7991.

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