Swing Trades (SGEN, AKAM)...

Seattle Genetics (SGEN) is biotech that has shown incredible growth over the last 3 years and is currently in a breakout pattern.

The trade:

     Long the stock at $50.71
     Long the September $42 Put at $1.65
   Stock to option ratio is 30:1
   The September put admittedly gives us scant leverage at just over 7x
     Breakeven prices on the trade are $56.21 on the upside (just over 3 ATRs to the upside) and $35.91 on the downside at expiration of the option

*I would be sure to size this trade accordingly because the option protection isn't great and there is a considerable amount of downside... that said, I like the stock and would definitely put on this trade.

Akamai Technologies (AKAM) is a cloud services technology company. The sector has been hit hard of late (QCOM, WDC, RAX, etc...) and AKAM is showing signs of a long term downtrend after recently reverting back to its 50 day moving average.

The trade:

    Short the stock at $72.78
    Long the September $77.5 Call at $1.44
    Stock to option ration is -40:1
    The September call provides >14x leverage
    Breakeven prices on the trade are $69.18 (slightly more than 3 ATRs to the downside) and $83.05 on the upside at option expiration

Comments

Modeling Black-Litterman; Part 2 - Incorporating Manager Views

"The 'radical' of one century is the 'conservative' of the next." -Mark Twain In this series, I'm going to explore some of the advances in portfolio management, construction, and modeling since the advent of Harry Markowitz's Nobel Prize winning Modern Portfolio Theory (MPT) in 1952. MPT's mean-variance optimization approach shaped theoretical asset allocation models for decades after its introduction. However, the theory failed to become an accepted industry practice, so we'll explore why that is and what advances have developed in recent years to address the shortcomings of the original model. The Black-Litterman Formula The Black-Litterman formula incorporates two distinct inputs; the first is the Implied Equilibrium Return Vector we constructed in Part 1, the second is a series of vectors and matrices that incorporate a manager's views/forecasts of the market. The product of the formula is an updated Combined Expected Excess Return ...

Modeling Black-Litterman; Part 1 - Reverse Optimization

"The 'radical' of one century is the 'conservative' of the next." -Mark Twain In this series, I'm going to explore some of the advances in portfolio management, construction, and modeling since the advent of Harry Markowitz's Nobel Prize winning Modern Portfolio Theory (MPT) in 1952. MPT's mean-variance optimization approach shaped theoretical asset allocation models for decades after its introduction. However, the theory failed to become an accepted industry practice, so we'll explore why that is and what advances have developed in recent years to address the shortcomings of the original model. The Problems with Markowitz For the purpose of illustrating the benefits of diversification in a simple two-asset portfolio, Markowitz's model was a useful tool in producing optimal weights at each level of assumed risk to create efficient portfolios. However, in reality, investment portfolios are complex and composed of large numbers of holdin...

Convexity as a Technical Indicator - Applications of the Second Derivative...

WHAT'S IN A NAME? In investment parlance, the term 'convexity' is typically reserved for the topic of fixed income risk; especially in regards to debt with embedded optionality where negative convexity is a prominent pricing factor. However, it is important to recall that 'convexity' (or 'concavity', for that matter) is a mathematical measurement used to describe the second derivative of a continuous, nonlinear function on an interval. The issue with confining the term to a single connotation is that - for better or worse - investment tools have become increasingly nonlinear since the days of the 60/40 model and convexity is present in a number of applications. The extent to which it has been circumscribed to a single asset class is evident in equity option jargon where the second derivative of the pricing function is called 'gamma' instead of convexity. Of course, the argument could be made that the principle purpose of option vernacular is to c...

Blue Horseshoe Loves This Finance Blog

Search This Blog