BBBY options

[noviceoptionstrader 0]

What's the best way to play the option on BBBY to profit from the fact that it may have overshot its selloff this past month and year? Would an option with a one year expiration date be the way to go? 

[Yowster 9,174]

2 hours ago, noviceoptionstrader said:

What's the best way to play the option on BBBY to profit from the fact that it may have overshot its selloff this past month and year? Would an option with a one year expiration date be the way to go? 

There is no "best way".  There are many, many ways to play for an increase in BBBY  it all depends on how much capital you want to use, what your timeframe is, and what sort of risk vs reward profile you want.    Here are just a few of the ways:

• One year out options will cost more than shorter dated ones but give more time for the stock to move.   ITM strikes will be more expensive and OTM strikes will be cheaper.   Long options will be more impacted by IV changes, and BBBY IV is still at the higher end of its range over the last year.   Declining IV will hurt a long call or put.
• You can use a call debit spread to lessen the impact of IV changes, but will cap your gains at the difference between the spread width and your entry price.   Farther OTM spreads will be cheaper and can grow more (higher percentage gains are possible), closer to ATM spreads will be more expensive and have less room to grow - but will require less of a move.   The longer-dated your debit spread is, the slower the gains (and losses) will grow.
• You can use an OTM butterfly - standard with equal wing widths or broken-wing where one side (usually the debit side) is wider than the credit side.   Dropping IV helps a fly when the stock price is within its strikes - so rising stock price along with falling IV will be a double positive.
• You can use a risk reversal where you sell an OTM put or put spread and use the proceeds to buy an OTM call or call debit spread.   Capital outlay is minimal and gains can grow quickly if stock price rises - but a falling stock price hurts both sides and losses can grow quickly too.

These are just a few.   Other more elaborate setups can have a longer-dated long option and then you sell multiple iterations of a shorter-dated option against it.  Ratio setups have unequal numbers of long vs short legs.   This is the beauty of options in that there are so many ways you can go with the same thesis - you can control how much capital you want to use, play different ways for rising, falling or neutral IV, use different risk vs reward profiles, etc.

 

 

[Ringandpinion 1,657]

@Yowster You should write a book.  That has got to be the most succinct and accurate description of options trading I've ever read.

[JamesMapp 0]

On 3/3/2023 at 4:14 AM, Yowster said:

There is no "best way".  There are many, many ways to play for an increase in BBBY  it all depends on how much capital you want to use, what your timeframe is, and what sort of risk vs reward profile you want.    Here are just a few of the ways:

• One year out options will cost more than shorter dated ones but give more time for the stock to move.   ITM strikes will be more expensive and OTM strikes will be cheaper.   Long options will be more impacted by IV changes, and BBBY IV is still at the higher end of its range over the last year.   Declining IV will hurt a long call or put.
• You can use a call debit spread to lessen the impact of IV changes, but will cap your gains at the difference between the spread width and your entry price.   Farther OTM spreads will be cheaper and can grow more (higher percentage gains are possible), closer to ATM spreads will be more expensive and have less room to grow - but will require less of a move.   The longer-dated your debit spread is, the slower the gains (and losses) will grow.
• You can use an OTM butterfly - standard with equal wing widths or broken-wing where one side (usually the debit side) is wider than the credit side.   Dropping IV helps a fly when the stock price is within its strikes - so rising stock price along with falling IV will be a double positive.
• You can use a risk reversal where you sell an OTM put or put spread and use the proceeds to buy an OTM call or call debit spread.   Capital outlay is minimal and gains can grow quickly if stock price rises - but a falling stock price hurts both sides and losses can grow quickly too.

These are just a few.   Other more elaborate setups can have a longer-dated long option and then you sell multiple iterations of a shorter-dated option against it.  Ratio setups have unequal numbers of long vs short legs.   This is the beauty of options in that there are so many ways you can go with the same thesis - you can control how much capital you want to use, play different ways for rising, falling or neutral IV, use different risk vs reward profiles, etc.

 

 

Thank you for saving my day, if I want to know more, I will ask