No-Risk META Trades

 Options collars offer a way to define risk. or eliminate it altogether, while still offering potential profit. A collar is defined as combining a Long Stock position with a Short Call position, and a Long Put position. Collars can be configured to provide a wide range of risk/reward options, but I will focus on trades that offer no risk to principle if held to expiration.

These examples are offered for educational purposes only and should not be considered as recommendations. No position should be taken unless all the possible risks are understood.

Different stocks present different opportunities, and today I will focus on one stock, META, which just had a huge run-up following it's earnings report. 

The first set of trade set-ups use the Apr 19 '24 options chain, which expire in about eight weeks. The examples are based on prices from the last few minutes of trading on Friday Feb. 2, 2024.

As a starting point we will begin with a trade that is sometimes referred to as a Carry trade, or Cost of Carry trade. This involves going long the stock, selling a Call close to the current stock price, and purchasing a Put with the same strike price as the Call. The expected payoff would be the current risk free rate of return, or what it would cost to carry the trade. This will vary at times due to market conditions, dividends, etc. META offers the current return:

Buy 100 Shares META @ 474.99                                                                                                          

Sell 1 Apr 19 '24 475 Call @ 28.90
Buy 1 Apr 19 '24 475 Put @ 23.00
Total Cost = 474.99 - 28.90 + 23.00 = 469.09

At expiration this trade would be worth $475.00, giving us a guaranteed profit of $475.00 - $469.09 = $5.91 x 100 Shares = $591.00. This would be a 1.26% yield in eight weeks. This would amount to over an 8% yield over the course of the year.

If you have a specific bullish or bearish outlook for META you can configure the collar to maximize the profit potential for each scenario:

Bullish Scenario:

Buy 100 Shares META @ 474.99

Sell 1 Apr 19 '24 485 Call @ 23.80

Buy 1 Apr 19 '24 475 Put @ 23.00

Total Cost = 474.99 - 23.80 + 23.00 = 474.19

Max Profit = $1081

Profit Return = 2.28% or a nearly 15% annualized gain

Min Profit = $81.00

Maximum profit is reached if META is trading above 485 at expiration. Minimum profit would be realized if META is below 475 at expiration.

Bearish Scenario:

Buy 100 Shares META @ 474.99

Sell 1 Apr 19 '24 465 Call @ 34.35

Buy 1 Apr 19 '24 475 Put @ 23.00

Total Cost = 474.99 - 34.35 + 23.00 = 463.64

Max Profit = $1136

Profit Return = 2.45%

Min Profit = $136

Maximum Profit is reached if META closes below 465 at expiration. Minimum profit is realized if META closes above 475 at expiration.

If one chooses the bullish scenario there is one other advantage. If the stock moves higher, you will realize a profit. If the stock moves lower, you lose no money, and you can also use the profit from the Long Put to reinvest in more shares, essentially giving you the ability to add shares at no cost.

No Risk AAPL Earnings Play

If you believe AAPL will decline following today's earnings report, here is a no-risk way to profit from that decline. While this may not be the most profitable way to play the earnings report, it does offer a way to profit with no risk.

Some people may be familiar with the collar strategy, where one seeks to limit their risk by purchasing a stock, selling an OTM call against the stock, and purchasing an OTM put to mitigate risk. These collars can be configured to offer protection against a decline at no cost, if the premium received from the sale of the call is enough to offset the purchase of the put.

Collars can also be configured, at times, to offer potential profit with no risk of loss of principle. AAPL, at the moment, offers just such an opportunity.

 Earlier today one could have put a collar on AAPL by selling the Apr 19 '24 Call for 16.10, and buying the Apr 19 '24 180 Put for a total cost of $174.67/share, or a total of $17467. If AAPL remains above $180, the stock will be called at that price, resulting in a minimal profit of $17,500 - $17,467 = $33.00. If AAPL falls below $180, the put begins to be profitable and adds to the gains up to a maximum profit of $533. This represents approximately a 3.05% gain in about six weeks.