Strategies For A Sleepy Bull Market
Nic Chahine, an options expert who specializes in selling options spreads to create a steady income, was a guest on Tuesday's edition of Benzinga's PreMarket Prep to discuss how to take advantage of risk arbitrage.
Chahine started off by saying that while the market is "dangerously bullish" and "zero fear," there is, however, a certain degree of "buyer exhaustion" in the "dog days of summer." Furthermore, Chahine said there appears to be some "recklessness" as investors and traders are "buying stuff they shouldn't be buying."
Despite the bullish sentiment, Chahine added there are still some "gems" left to be discovered by investors. On the other hand, investors can take advantage of short-term weakness in an otherwise solid stock, like Starbucks Corporation (NASDAQ: SBUX).
Chahine stated that those who are bullish on a stock should consider selling a credit put spread. He added that the further the option trade is from the current price, the "safer" the trade is. The problem is the low volatility environment makes it more difficult to find the ideal risk-to-reward trade.
Individual Stock Strategies
Chahine went on to discuss several individual companies, including Twitter Inc (NYSE: TWTR).
The options pro said he isn't a fan of Twitter's management team, although he does love the platform. He suggested that investors looking to own Twitter would be wise to finance a call option by selling put options or put spreads.
Specifically, he recommended selling a $16 December put option and collect around $1 in premium per contract, but this should only be done if investors are willing to buy the stock themselves at $16 per share even if it is trading below the $16 mark.
"If you are willing to go long Twitter here, I bet you are willing to go long Twitter at $16," he explained. "So it might be a safer way of doing it by committing at a lower price, collecting some money, taking that money and buying calls with it — if that is your plan for going long on Twitter."
Alibaba Group Holding Ltd (NYSE: BABA) has seen a strong rally over the past few months and came close to testing the $100 level. However, the stock has sold off to the near $90 level, so Chahine's recommendation would be to sit this one out for the time being since the price action makes it "too hot to short" and "too high to chase."
Priceline Group Inc (NASDAQ: PCLN) is a stock that "moves a lot" but "doesn't need a lot to move," but Chahine is waiting to see if the stock can shoot above its all-time high before placing a trade.
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Latest Ratings for BABA
|Sep 2016||Deutsche Bank||Maintains||Buy|
|Sep 2016||Daiwa Capital||Maintains||Buy|
|Aug 2016||JP Morgan||Assumes||Overweight|
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