Pure Speculation- Sear's ($SHLD) Calls and Puts
Anyway, the idea is selling Sear’s calls. I’ve mentioned Sear’s several times before (mainly in connection with their spinoff of Orchard), and had them lined up for a “powerball“ post before the recent 60%+ run in their stock price (in two weeks!!!). I’ve also been interested in their debt, and if anyone knows of an easy way to research the debt in a company’s capital structure (without Bloomberg!) I’d be interested to hear it.
But this idea is different than all those. Sear’s stock has enjoyed a massive run up in the past few weeks on what was almost certainly a short squeeze. The company is still in a horrendous position versus its competitors, and while the stock price may prove to be too cheap at today’s levels (especially considering their real estate), it would likely take a quarter that showed some sign of stabilization and didn’t involve massive write offs before the stock could make any further moves up.
Given all that, the huge move has resulted in some ridiculous volatility on Sear’s options. The stock is currently at $47.40, and the Feb $52.50 calls trade for >$2.00 per share with the $42.50 puts trading for ~$3.75 per share. Those would imply moves of >$10% before they would even get exercised, and moves of >15% before they would prove unprofitable. Those are some HUGE moves for an option that expires in one month.
So, again, I’m not doing it. This is pure speculation, and there’s a decent chance of siginificant loss. Keep all that in mind. But if you’re feeling frisky, sell into this huge volatility premium. If you like the stock one way or another (I personally think it’s akin to a melting ice cube- currently undervalued, but losing value so quickly that it’s tough to feel comfy with it), sell the option that goes with your preferred direction. If you think it’s undervalued, sell the put. Overvalued, or only moved up on a short squeeze and headed back down in the near future? Sell some calls.
Again, no disclosure, and I won’t be joining you. Just fun food for thought.