AXON Trade Update – Follow-Up
Congrats! We are currently up $100 per calendar spread on our trade! This will lower the price of a bullish play considerably! A run-up has begun however, so the return to risk is no longer in our favor as the short call premium dwindles. Therefore, I have chosen to execute the second part of the plan now instead of waiting until next week.
While my initial plan was to keep the long calls and sell a higher strike in October (which is still doable), I reviewed some payouts and in order to maximize payout per dollar upon success, a 35/40 strike will maximize that is truly a success would value the company over $40, which is the thesis. That call vertical is currently selling at $.95, which isn’t a bad price, and will result in 5x. If you think AXON will actually hit $100, The $40 calls are priced at $5.25, which would be a higher value per dollar than the vertical. The vertical however only requires a price of $40 to realize 5x while the naked call would need a price of $66.25 to realize 5x. Just breaking it down so you can make the appropriate decision for your opinion.
When I was talking last month about this trade, I saw a couple of things. First that the IV assumed a price of $50… that has since lowered to $35. I also noticed that because of the wacky IV pricing, I assumed that CBOE would offer more strikes. They only offered a $40 strike. Considering how wacky the IV already is and the fact they must have seen that when making the additional offering, I would not expect any additional strikes to be offered. They may, but I wouldn’t count on it.
Disclosure: Author has just exited calendar trade. Will seek to enter into a vertical trade.