Today’s trade idea for option traders: Vuzix Corp (trade closed)
Vuzix Smart Glasses is a producer of augmented-reality (AR) glasses to free the people hands and increase productivity of maintenance technicians. Former generations of AR glasses, like Google’s, had largely failed with private consumers, but manufacturers have found new use cases in industrial and enterprise markets. Sales of Vuzix Smart Glasses jumped by 156% in the third quarter and Cathy Wood’s team from ARK Invest bought recently a stake in this company. So fundamentally, Vuzix seems to gain a foothold in the markets. From the trading perspective, there is an opportunity for option traders to try this one.
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: 16th April (53 days)
Premium for 1 option: between $200 and $235 on the day this article was published
Margin: apprx. $400 on the day this article was published
Pros for this trade:
– A strong long signal (I’m using the ADX-Indicator), giving a higher probability that the price would stay above the strike in the next 53 days
– ARK Invest’s investment in Vuzix could provide buoyancy and price support
Cons for this trade:
– Low IV Rank of 13% and not an optimal IV Percentile of about 54% (Source: Trader Work Station)
– As a grower, this company doesn’t pay any dividends. If the option would land in the money, you’ll need to keep the stock and wait for prices of at least $17 in case you want to get out of the trade without a loss. In worst case you’ll need to wait months or even years. That’s why the bull put spread might be a better solution for some traders
– In a short term perspective, there might be a volatile period in the markets which could cause a stronger correction and thus pushing the price of this stock below the strike
Result of this trade: you could close the position on 31st March for around $30
Realized profit for 1 option: $205 – $210
Days in the trade: 37 (of maximum 53 days)
Summary: Like the last trade on Virtu Financial, this one was also pretty bumpy. In such situations it’s really important to stay cool and let things to develop or to set a strict exit strategy if you don’t want to get the stock assigned.
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