[Options] Taking a Flyer on Chinese Content

Sean McLaughlin
January 25, 2023

Chinese content? What?

Look, I don't know. I just follow Price. They are all just letters and numbers to me. If it trades, it's liquid, and there's a good technical setup -- that's all I need.

It just so happens that this particular company is engaged in creating Chinese internet content. Ok.

But man oh man do I like the potential reward-to-risk setup here so let's get straight to the point...

Here's a chart of $1.9B Chinese internet content company Hello Group $MOMO:

And here's what Strazza had to say about it in a recent Special Report:

Following a roughly 90% drawdown from its peak in 2018, the stock is in the process of reversing to the upside. At the end of last year, MOMO broke out above a downward-sloping trendline and reclaimed a critical level of interest at its prior-cycle lows.

Our risk level is clearly defined, and the risk/reward profile is skewed in our favor. We only want to own MOMO if we’re above 9.50, with a target of 23.15 over the next 6-12 months. Below 9.50, and we don’t want to touch this one.

I added the emphasis on that price target.

With the stock currently trading around $10.50 per share, implied volatility is pricing calls options surprisingly "cheap" if this target is going to become a reality.

Feels right to take a long shot for a huge payout if we nail it.

Here's the Play:

I like buying $MOMO July 15 calls for approximately 60 cents. This premium I pay today represents the absolute most I can lose. And due to the fact these calls are more than $4 out of the money right now, there is a high probability of a 100% loss of premium, so I'll size my position conservatively.

If $MOMO even threatens to make a run towards that $23 price target, then we should get a good opportunity to at least sell half of our position when the calls have doubled in value, so that we can enjoy a #FreeRide on the remainder of this long shot.

$9.50 is the price level I'll be watching on the downside. If $MOMO closes below it, then our trade is likely dead and I'll look to close the position for whatever I can get (if anything).

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