[Options] Buying the Dip in Synaptics
Here's what Steve Strazza had to say about it in his recent Under the Hood report:
$SYNA has been consolidating in a giant base for more than 5-years now.
You can see price poking its head above those former highs near 103 as it looks poised to finally resolve higher.
What you cannot see in the chart though, is that the stock is in a serious primary uptrend, and has been since coming public in the early 2000s.
Consolidations and continuation patterns are always more likely to resolve in the direction of the underlying trend, and we think it will be no different with Synaptics.
We want to own SYNA above 103 with a target at 150 over the next 6-12 months. This one can potentially consolidate up here near former highs, and it could possibly take some time to break out. Think about where it’s come from. So keep in mind that if we’re not above 103, there’s no reason to be long.
Heeding Steve's caution that it might take some time to work through some overhead supply at all time highs, I like a bullish call calendar spread here to help lower the cost of participating in a potentially slowly developing, but major breakout.
Here's the Play:
I like a $SYNA Feb/June 120 Call Calendar Spread for $4.50 or cheaper. This means I'll be simultaneously short the February 120 calls and long an equal amount of June 120 calls for a net debit (which represents the most I can lose). The short calls basically reduce our cost of the long June calls. This lowers our net risk.
My position management plan is as follows:
If $SYNA closes below $90 per share at any time during my hold, I'll consider our breakout play a bit premature and I'll look to close the whole thing down for whatever I can salvage.
If $SYNA trades up to and/or through $120 per share before our short February calls expire, then I'll close the trade down and book a highly likely profit. How big that profit is will depend on how close to February expiration we are. The closer to expiration, the more profit as the short calls will have less and less premium in them. I don't want to let $SYNA get too far beyond $120 because as you can see in the graph above, the P/L structure of this trade actually declines on the backside of 120.
If $SYNA does not trade to $120 before February expiration, then those short options will expire worthless and then I'll continue holding the June 120 calls into June and hope the big move materializes by then. At this point, we'll just treat the trade like a simple long calls trade, and we'll revisit the position on June 1 and decide if it's time to shut it down (because our calls are out-of-the money) or to tighten up a trailing stop because $SYNA is trading above $120 and we're riding profits.
If you have any questions on this trade, please send them here.
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