This stand-off between shorts and longs may result in a big swing in PPS, up or down, between March 1st and March 15th. 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.