REGN – 6/30/16
On 6/30 I decided to place an aggressive Bull Put Credit spread on REGN based on a momentum strategy I seldom use. The reason I seldom use it is because it is higher risk than the strategies I prefer. This trade is usually made on a Wednesday or Thursday afternoon with options that expire at close on Friday. The premise is that if the stock is moving up with momentum it will not break that and change directions on Friday with enough momentum going the other direction to threaten your position. You are also benefiting from the sharpest time decay possible since the options expires in 24 to 48 hours.
The first thing you have to do is find a stock that is showing substantial momentum in a particular direction. I use a Momentum and the MACD indicator to decide if a stock looks like a good candidate. You will also need a stock with a relatively high volatility to get a good cushion between the current price and your short position.
REGN appeared to have upward momentum on 6/30 trading at $348.27. It had channel support at $345 and 21 day moving average and 50 day moving average support. There was heavy resistance at $350.00 which could pose a problem but with 24 hours to expiration I decided to make the trade. I sold the July week 1 $340 strike calls for $0.73 and purchased the July week 1 $335 strike calls to cover for a net credit of $0.33. I had just over $8.00 in cushion with less than 24 hours to go on a stock strongly moving the other direction with a couple of support lines to break through before I was in any danger.
REGN shot up through the $350.00 resistance and closed at $357.98 on Friday. My position was never in any danger and my positions expired letting me keep my credit. I had risked about $2,350.00 and walked away with $148.32 or about 6.31% in one day.