This stand-off between shorts and longs may result in a big swing in PPS, up or down, between March 1^st and March 15^th.  You may not know which way the PPS will swing, but if you believe a big move one way or the other will happen, there’s a specific options strategy to take advantage of that.

If we longs are right, some expect we’ll see a spike to perhaps $75-$90 and if the GD shorts are right, they would see a selloff – or bear raid – to maybe $45-$50.

If you believe that general scenario, you can consider a simple “Straddle”, used by option players to exploit an anticipated big swing, without knowing whether the move will be up or down – just BIG.  The straddle involves buying an equal number of Put and Call options at the same expiry date.

Here’s an example using current option prices….

Buy 10 March 65 Calls ($2.70) and 10 March 55 Puts ($3.80).  Total cost is $6,500.

The trade starts making profit if the price spikes above $71.50 ($65 +$6.50) or below $48.50 ($55-$6.50).

So at $80, you’d make $8,500, and at $45 you’d make $3,500.

'TomCrooz' pid='17137' datel Wrote:Sold out my March 60 calls around 1/25 and bought the June 60 @ 7.75 a couple days ago. March expiry way too close to anticipated news. Hope news of selldown before June will occur but I am somewhat nervous that even June is optimistic.

Interesting, I did something similar the other day.  I had some 50's and 55's and decided to sell them.  I then repurchased the Jan 14 40 calls.  Although I don't have the leverage I normally like, I just can't help but think that if the MM and shorts start playing games again, it would stink if they pressured the price down below 50  and they expired worthless,  That is - in the event the board decision was delayed by a couple of weeks.      Also, by moving the calls out a little into the future, that gives me the ability to hang in there if a bidding war does begin.  I can't help but think the IOC is going to get take out this year.