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Tony Zhang's Wayfair Options Trade

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Tony Zhang's Wayfair Options Trade

On CNBC's "Options Action," Tony Zhang said he really likes Wayfair Inc (NYSE: W) going into earnings this week. He explained it sits at the intersection of the shift towards e-commerce we have seen in consumer spending and the shift we have seen in terms of spending for home improvement. He expects the company to report fairly strong numbers Tuesday.

The stock has been trading in a range between $240 and $320 since the beginning of August and we're currently trading at the bottom of that range, said Zhang. The market is implying a move of 16.4% for the event and it usually moves around 13.1%.

Because of the high implied volatility, Zhang wants to sell the December $240/$210 put spread for a total credit of $12.50. If the stock trades below $227.50 or 8.28% below the current stock price, the trade is going to start to lose money. It can make a maximal loss of $17.50 if the stock drops to $210 or lower.

 

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