I like holding the cards, or at least stacking the odds in my favor. Let me show you what I mean. I had a major technical long trigger Tuesday morning in Best Buy Co Inc (NYSE:BBY). Here’s the chart:
Not to get too “technical” here, but we have two major indicators that signaled the long. First is what I call an inside bar entry and second was how it put in lows at or near the 200 Day Moving Average three days in a row(rejection at support). So for me, it’s onwards and upwards (hopefully). As an options trader, my first instinct is to do one of three things: buy at-the-money calls, buy a call vertical or sell a put vertical. Depending on the reward to risk, I typically make a play along these lines. But BBY is a bit unique at this point in the cycle.
Earnings are scheduled for May 20th. What if I can make a directional bet but still leave myself opportunities come earnings? I can do exactly that. For example, I can buy the regular May expiration 37.5 call vs. the 5/22 weekly expiration call calendar for a debit of $0.50. If we go down, we do have our $0.50 of premium at risk. That risk would be there with a straight vertical or call option buy though.
But we may have the opportunity to “double up” if we do rally. If we have a controlled grind up I can sell out of my calendar for a profit. But what can also happen is that the regular May options expire worthless and then I can turn around and spread off my existing weekly position to even increase my leverage more! The important thing is that I get to choose, exit for a profit or lever up into more and more profit!