Today’s trade idea for option traders: Sinclair Broadcast Group (trade closed)
My last trade idea on Sinclair Broadcast Group (SBGI) was almost a year ago. And since that time, SBGI had first a nice, dynamic move upwards followed by a pretty steep drop literally within days in March 2021 from the high of around $39. Caused by several negative fundamental news, the price decline finally stopped at the levels of around $28 and since then it was moving sideways in a slight decline till now. Since then a triple bottom was formed at the level of around $26, there is a good chance the price will bounce from this level and move higher. At least in the next couple of weeks. And that would be enough to set up a short term trade as usual. So let’s dive in, folks.
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 (slightly in the money)
Alternatively: Bull put spread
Expiration: 21st January 2022 (79 days)
Premium for 1 option: between $250 and $300 on the day this article was published
Margin: apprx. $400 on the day this article was published (Please keep in mind: the margin size depends on your account size. The smaller your account size the higher the margin requirements. The margin I’m publishing here is the margin based on my account size. Therefore, it could also happen that with a small account, you would see a margin of more than $2000)
Pros for this trade:
– Based on the signal I get (ADX-Indicator), the price could start to increase and to stay above the strike so we can get rid of the put option when the time is right
– A good support of the triple bottom provides a chance that the price would move at least sideways during the next weeks until the expiration of the option
– An acceptable dividend of 2.87% on the day the trade idea was published, in case the price would fall below the strike and you would get the stock assigned (Source: finviz.com)
Cons for this trade:
– A pretty low IV Rank (around 28) and IV Percentile which could be better (around 40%)
– A relatively high Fear & Greed Index of 79 which increases the risk of a stronger move downwards across the stock market
– Negative fundamental news could push the price below the support line and destroy the trade idea
– As trading with options is also a dealing with probabilities, every of my assumptions could turn out as a wrong estimation so at the end the stock would land in the money and you would close the position with a loss (in case you don’t want to keep the stock)
Result of this trade: You could close the position on 13th January 2022 for about $15 – $20
Realized profit for 1 option: $250 – $280
Days in the trade: 71 (of maximum 79 days)
Summary: In total, this trade was far beyond of what I call a perfect one: in spite of a long signal and a strong supportive line, the selling pressure was stronger which caused a break of the support line and a decreasing prices until December. But then, the bulls took over the helm and lifted the price of SBGI over the strike level before the expiration date. Hence, mission accomplished!
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