Today’s trade idea for option traders: Virtu Financial Inc. (trade closed)
Virtu Financial is one of the leading high-frequency trading companies. Also, it’s one of the biggest market makers and provides liquidity to the financial markets. Making the best money in high volatility environment, Virtu’s stock was swinging sideways since the Corona crash but was beating the earnings estimations of professionals in Q3 2020. Although an analyst of Morgan Stanley downgraded Virtu to underweight on 11th January, option traders might to get an trading opportunity. So let’s check it out.
The information I am giving you in this article is for informative purposes only and should not be treated as investment advice. The information presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in trading activities related to the information in this article should do their own research and seek advice from a licensed financial adviser.
Type of a trade: Cash secured put (in the money)
Alternatively: Bull put spread
Expiration: 19th March (50 days)
Premium for 1 option: between $300 and $400 on the day this article was published
Margin: apprx. $360 on the day this article was published
Pros for this trade:
– A long signal (I’m using the ADX-Indicator), giving a higher probability that the price will be pushed above the strike in the next 50 days
– Stock’s price crossed the resistance level (blue line in the screenshot) which could be valued as an assault for higher levels
– A 3.50% dividend in case one would get the stock assigned
– A very high IV Percentile of 90% which is indicating that the Implied Volatility of Virtu Financial was usually lower in the past (Source: Trader Work Station)
– Relatively low Fear & Greed index of 46 at the day this article was published
Cons for this trade:
– Relative wide bid/ask spread which would make it more difficult to close the trade for a decent price in case one don’t want to get the stock assigned
– Downgrade of Morgan Stanley’s analyst who is saying: “Elevated levels of volatility are currently priced in the market, which creates downside risk as the market environment normalizes” (Source: Seeking Alpha)
– Crossing the resistance level could turn as a bull trap and send the prices far below the strike.
Result of this trade: You could close the trade on 17th March 2021 for about $20 – $30
Realized profit for 1 option: $310 – $320
Days in the trade: 48 (of max. 50 days)
Summary: In total, it was a pretty bumpy trade and at the lowest points I was pretty sure to get the stock assigned. That’s why it took so long to close the trade. But in the end things turned out fine. Winner winner chicken dinner!
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