Skip to main content

Swing Trade - Short DV...

Continuing in the direction of adding short exposure given my personal market views (which have been strengthened by exponential trend projections), here is a short trade on DeVry Education Group.  DV is a for profit education company... the for profit education sector has been hit hard lately (APOL, STRA) due to increasing regulatory curiosity into the business practices of many of these companies.  Whether DV falls into that category or not is not yet fully known or even the impetus for the trade.

The stock went through a dramatic draw-down during the first half of the year, losing approximately 1/3 of its market value before consolidating at its current range of $30 - $35 a share.  From a technical standpoint, it looks to be breaking down through this level and this represents a breakout trade (or breakdown if you prefer).  The company reports earnings on August 18th which gives the trade a nice catalyst at that time.

Here's the trade:
  • Short -75 shares DV @ $30
  • Long 1 September $30 call for $1.75 each
  • Breakeven price is $27.66 (3 ATRs away) and $37 on the upside
  • Option leverage is 5.5x (admittedly low but it's an ATM call with a boat load of implied vol)
  • Max loss on the trade is -7.22%
I typically don't like using at-the-money options unless I'm selling vol but the next strike available is at $35... a little too far away.  I think it gets the job done, however, as it has good liquidity and keeps the downside on the trade very manageable.

 

Comments

Popular posts from this blog

Modeling Credit Risk...

     Here's a link to a presentation I gave back in August on modeling credit risk.  If anyone would like a copy of the slides, go ahead and drop me a line... https://www.gotostage.com/channel/39b3bd2dd467480a8200e7468c765143/recording/37684fe4e655449f9b473ec796241567/watch      Timeline of the presentation: Presentation Begins:                                                                0:58:00 Logistic Regression:                                     ...

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...

Bitcoin Contagion?...

Same Song, Next Verse... On April 6th, the cryptocurrency market breached the $2 trillion mark in asset valuation for the first time.   However, on April 19th, Bitcoin traded below its 50-day simple moving average (SMA) for the first time since October and has, thus far, failed to reclaim that technical safety level.  Also, another bearish indicator is forming as it looks like the 20-day SMA will cross below the 50-day today.   As someone who graduated college in December of 1999 right into the waiting arms of the dotcom crash of 2000 and then, about 7 years later, had a front row seat to the housing crash and subsequent financial crisis, this all looks eerily familiar...  Bitcoint has had a 6x run-up within the span of a baseball season and crypto - in aggregate - is currently about 2% the size of the US equity market.   This all begs the question... 'What happens if this bubble bursts?' On the surface, it's hard to imagine a repeat of the contagion o...