Here’s a stock/option trade I’m making on Monday. Check out Virtu Financial (VIRT). (May 11, 2018)


I want to look at Virtu ( NASDAQ: VIRT ) here. This is a high frequency trading firm, it looks like it is being “high frequently” shorted. Earnings are not that great. You can see what has happened with the stock, right?

I am teaching more and more, these dead cat bounce types of trades. This isn’t the best one but it is the one that I am looking at now. You can see that actually, traders had anticipated this earnings issue; I think they had a secondary offering too if I am not mistaken. The stock is down like 20 percent just from this squeeze; from the very high it is down more than that, almost 23 percent so the stock is oversold. I was looking at this today, setting up my scans and I noted that the stock actually bottomed; you can only tell so much on a daily chart.

Well, here it is, the stock closed at 29.20, traded in a range. Big whoop! It is not until you really look at the intraday chart that you can see, well wait a minute, the big, massive selling climax was first thing in the morning. A half an hour after that all the selling got done and then the stock started to lift from there. So you could look at this as a stock that was down. But I would look at this and say, actually, from the low here this stock is actually up. At one point it was up a lot more than 3 percent. But right now I look at this as the stock being up.

So what I did right into the close was, I bought some stock and I sold some puts on the stock. Because the implied volatility was pretty good; the options were pretty expensive. And by the way, they are not that liquid either but I am just explaining the trade. I sold some puts; I bought some stock so I have a pretty low-cost basis in the stock.

IF Virtu ( NASDAQ: VIRT ) rallies on Monday and I expect it to get some kind of a bid; if it rallies on Monday then I am going to sell some calls into my stock. Now I have got a covered straddle, well, it depends on which strikes I am selling. The bottom line is, I am buying the stock, I am selling the puts, I am selling the calls. The idea is, this is an oversold bounce that is going to move up another buck or two and at that point I can exit the trade gracefully for a really nice profit.

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