[Options] I'm Gonna Strangle Philip!

Sean McLaughlin
September 6, 2023

He had it coming.

But this isn't really about Philip and his cancer sticks.

Instead, I'm going to sell premium in his Philip Morris stock options, betting on the company going nowhere for at least the next month.

First up, look at this chart:

We can clearly see the range contracting all year in $PM. Given what the broader stock market is doing, my bet is this range contraction continues.

Now the wrinkle we have to deal with is that Philip Morris is slated to release their next quarterly earnings statement on October 19, which is ONE DAY before October monthly options expire! That makes it tricky to be selling premium in the regular monthly options.

But the good news is, we can select the October 13 WEEKLY expiration options to express our trade.

Here's the Play:

I like selling a $PM October 13 (weekly) 90/98 Strangle for approximately $1.40 net credit. This means I'll be naked short equal amounts of the 90 puts and the 98 calls:

Due to the undefined risk inherent in holding naked short options, I need to be vigilant in exiting this trade if my range is breached.

So any $PM closing price above $98 per share or below $90 per share is my signal that I'm wrong and I'll exit the trade win or (likely) lose.

Meanwhile, I'll leave a resting GTC limit order to close this trade for a profit at .70 cents, which is half of what I collect today. Not being greedy, but tactical.

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

If you missed last week’s video Jam Session, you can catch a replay of it on Stock Market TV.

~ @OptionsSean

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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