No need to get cute, and no need for an elaborate explanation of what's going on.
Quite simply, we're in a bull market. And it would be irresponsible to think that technology and high beta names won't be playing catchup soon.
We could try to pick the individual winners, or we can just buy a basket. Today's trade is that.
Here's a current one-year chart of ARK Innovation ETF $ARKK:
In the video above, me and Steve Strazza discuss that we want to be owners of the March 55 calls for a breakout move that kickstarts a recapture of all the lost mojo here in ARK over the past couple of years. It's crazy that this ETF once traded as high as $159.
Today's trade is not a bet that we'll be back there any time soon. But we think the battleship is turning and we'd like to catch the first wave.
Here's the Play:
I like buying a $ARKK Nov/Mar Diagonal Call Spread. We're going to short the November 53 calls and simultaneously purchase the March 55 calls for an approximately $1.25 net debit, which represents the most we can lose in this trade (as currently constructed).
The March 55 calls are the position I really want to own. But I'm selling the Nov 53 calls against it to help lower the cost of participation and weather any pause we may experience as $ARKK is likely to run into some temporary upside resistance in the 53-55 zone.
Ideally, the November 53 calls expire worthless, leaving me long the March 55 calls with the potential for unlimited upside. But if $ARKK trades up to 54 (putting my short calls $1 in-the-money), then I'll roll those Nov 53 calls to the December 55 call strike (hopefully for a credit, but possibly for a debit, depending on timing) creating a traditional call calendar spread. If that happens, I'll update everyone in the chatroom on the next steps as to if/when we'll take the entire calendar spread off.
Of course, all bets come off if $ARKK loses the 44.50 level. Any close below invalidates our trade thesis and I'll close the entire position.
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.
