Today’s trade idea for option traders: First Horizon Corp (trade closed)
(Last Updated On: 28. February 2022)
It’s another bank, folks. Some shareholders may be concerned to see that the Director, Roger Taylor, recently sold $5.5m worth of stocks. But if insiders are selling that doesn’t always mean that there is something wrong. If you don’t believe me, a regular trading guy, maybe you would believe Peter Lynch where he describes this situation in his book “One up on Wall Street“*. Fundamentally, First Horizon has a good stand and a positive outlook, also due to merger with IBERIABANK. Anyway, as option traders, we always are looking for positive short-term opportunities. And the next one is right now. So check it out, folks.
Disclaimer:
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: 18th June (44 days)
Strike: $21
Premium for 1 option: between $235 and $250 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 would hit the strike in the next 44 days. But frankly, I don’t believe that the price would hit $21 in such brief time span. Therefore, there are higher chances that the price would approach close to the strike at the end of the expiration of the option. In other words: in this case we are relying only on the time decay. If the price would cross the strike of $21, so much the better!
– A dividend of 3.21% 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)
– A relative moderate Fear & Greed Index of 49
Cons for this trade:
– Low IV Rank and IV Percentile
– The long signal could turn out as a flash in the pan
Follow me on LinkedIn or Reddit and don’t miss my trade ideas.
Result of this trade: Like the trade idea on Radian Group, this trade idea neither worked out. As a result, you would have got this stock assigned (like me).
Realized profit for 1 option: $235 and $250 (full premium as the stock landed in the money)
Days in the trade: 44 (of total 44 days)
Summary: This is another example to show you that there is no 100% hit rate possible. It’s absolutely normal that trade ideas don’t work out. That’s why it’s also very important to have a strategy and a careful consideration before you enter a trade. Ask yourself questions like: “Do I want to sell options on stocks or rather on futures? What will I do, or what must I do when the plan wouldn’t work out? Can I afford to get a stock assigned or need I to close the position with a bearable loss?”, and so on.
What’s next: Because of the risk of landing in the money, I usually prefer to sell options on dividend payers. In this case, I again will keep the stock and get paid for waiting until it hits the former strike to get rid of it.
Update: I could sell First Horizon on 28. February 2022 with a relatively good profit, thanks to TD Bank Group which has agreed to acquire First Horizon Corp. for $13.4 billion in cash. In total, I held this stock for 255 days and collected every quarter a nice dividend.
Would you like to learn how to trade options in a serious way without false promises and beyond the gambling ambitions of the masses? Then enroll in an online course on Udemy*. Also check my course I created to show you how to profit from crashes in the stock markets with reversal signals*.
