Pure Storage delivers so-called All-Flash-Arrays (AFA) infrastructures and has an excellent reputation in this industry branch. The stock of this company is listed on the exchanges since 2015 and in total, it didn’t perform well. But now, from a point of view of a chart technique, this turns into a short-term opportunity for option traders. From a fundamental point of view, analysts expecting an increasing EPS of $0.26 in 2021 which should support the stock’s price. So let’s check this option trade opportunity, folks.
Disclaimer:
The information I am giving you in this article is for informative purposes only and should not be treated as investment advice. The information presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in trading activities related to the information in this article should do their own research and seek advice from a licensed financial adviser.
Type of a trade: Cash secured put (just a bit in the money)
Alternatively: Bull put spread
Expiration: 19th February 2021 (64 days)
Strike: $22.50
Premium for 1 option: between $165 and $180 on the day this article was published
Margin: apprx. $650 on the day this article was published
Pros for this trade:
– A long signal (I’m using the ADX-Indicator) is giving a higher probability that the price could be pushed over the strike and staying there in the next 64 days
– December provides a statistical probability of the year-end rally and hence, higher to push the stock price to the out-of-the-money area
– Positive fundamental medium-term outlooks of Pure Storage are supporting the price and increase the probability that the prices will be pushed higher and stay over the strike
Cons for this trade:
– Low IV Rank of 8% and low IV Percentile of about 16% (Source: Trader Work Station) showing an environment of low implied volatility
– In case the price gets settled under the strike and you get the stock assigned, you will get no dividend. So you’ll need to keep the stock and wait for price levels of at least $22.50 in case you want to get out of the trade without a loss. In the worst case you’ll need to wait months or even years. That’s why a bull put spread might be a better solution for some traders. On the other side, this company is a growing one which could provide a chance to make some extra profits from rising prices after you got the stock assigned. Star investor Peter Lynch describes in his book “One up on Wall Street“* those opportunities as x-baggers (x stands for a random number).
Result of this trade:
t.b.a.
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