[Options] The Way Fair(er) Price is Higher

Sean McLaughlin
May 13, 2024

In today's Flow Show, Steve Strazza and I talked about how this market is setting up to be potentially very problematic for short sellers.

And the most pain will likely be felt in the stocks that currently have a heavy short interest.

With this in mind, the short squeeze pond is where we want to be fishing for long ideas.

In the video above, you can watch how Steve and I developed today's trade idea in Wayfair $W.

Here's the current one-year chart:

Here's the Play:

I like buying a $W December 75/105 Bull Call Spread for an approximately $9.00 net debit. This means I'll be long the 75 calls and short an equal amount of 105 calls. The debit I pay today is the most I can lose:

For risk management, I'll monitor two things:

  1. If $W sees a closing price below $68 per share, that is my signal that this stock is not committed to the breakout yet. I'm early or wrong and I'll want out.
  2. Secondarily, if the value of the spread loses 50% of the premium I pay today, then I'll pull the plug and protect what's left of my capital in the trade.

If neither of the above scenarios comes to pass, then I'll continue holding the position until December (expiration month) or if $W prints at or above our $120 price target. Whichever comes first -- $120 or December 1st -- will be my signal to take profits and move on.

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

If you missed my most recent ASO video Jam Session, you can catch a replay 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: 323-421-7910.

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