DISH has been in a nice oscillating uptrend for some time now. We think that given the chart and the fundamentals, this steady climb will continue. Therefore, getting into this trade involves two tactical considerations: strategy and timing.
Strategy: This is a momentum play, but a slow-and-steady momentum play. The options month needs to be far out enough to let this trade breath. The strike needs to be near-the-money. DISH closed at 29.03 on Friday. Too far out-of-the-money lessens the chance of success. The ideal play here is to buy the September 30 calls for 1.90 or less. This trade has less risk premium, a reasonable chance of success and enough time for the trade to come to fruition.
Timing: We have got a nice little trough in this uptrend. The recent market pullback presents itself with a nice opportunity to get into the trade, timing the market reasonably well. With a market recovery and uptrend continuation, these calls have the potential to show a nice leveraged profit over the next few months.
Dan Passarelli of MarketTaker.com writes the Market Taker Edge options newsletter. Dan has more than 17 years’ experience in the options industry as a market maker, Options Institute instructor and author of “Trading Option Greeks.”