The automated Quantcha Trade Ideas Service has detected a promising
SHLD was recently trading at $8.04 and has an implied volatility of 47.32% for this period. Based on an analysis of the options available for SHLD expiring on 18-Jan-2019, there is a 68.27% likelihood that the underlying will close within the analyzed range of $2.64-$26.28 at expiration. In this scenario, the average linear return for the trade would be 195.74%.
Upside potential: This synthetic long position offers the same potential benefits and liabilities as a long stock position, but at a discount due to the significant premium at-the-money puts are trading at over calls. In this case, the long call position is opened at a strike of $8.00, which is already $0.04 in the money. An out-of-the-money put at the same strike is sold to finance the call, resulting in a net credit of $1.70 per share. The final position can be considered as having a discount of $1.74 per share over the underlying price of $8.04 for a 21.64% total.
Downside risk: This discount is generally a sign of the stock facing considerable short pressure, and may indicate that the stock has become hard to borrow. However, if you have a long view of the underlying over this period, it could be a good opportunity to benefit from the upside at a major discount.
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This is an automated post generated based on a market analysis of delayed data at 2/28/2017 10:25:37 AM ET. The analysis does not include brokerage fees or commissions and is not investment advice.