Mike Khouw's OpenTable Inc Trade
CNBC Options Action's Mike Khouw advised viewers with a long position in OpenTable Inc (NASDAQ: OPEN) to consider an option strategy that could help them to recover from today's loss. He said that people often ask him what to do after a stock trades significantly lower. Mr. Khouw explained that there is no magic bullet in these situations, but if you use options it is possible to increase your profits, if the stock rebounds.
OpenTable Inc (OPEN) dropped 11.76% on Wednesday, and in this situation, Mike Khouw would use a ratio call spread. He would buy the April 45 call for $4.60, and sell two April 50 calls for $2.30. You wouldn't have to lay out any money for this trade, and if OpenTable Inc (OPEN) recovers $5 you would double the profit. If the stock continues to trade lower, you would lose money, but with this strategy you would not be buying more shares, and taking more risk.
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