High IV Play Blackstone Stock Could Be Ripe For This Option Trade | IBD

TL;DR

In this video, the presenter discusses a short strangle trade on Blackstone, an alternative asset management firm. The stock is in a downtrend, and the presenter suggests capitalizing on the high volatility through this options strategy.

Transcript

foreign ERS for today's option trade we're looking at a short strangle trade in alternative asset management firm Blackstone taking a look at the stock on Market Smith shares have been in a strong downtrend since November of last year more recently on November 11th of 2022 shares attempted to retake their 200-day line but were rejected at this leve... Read More

Key Insights

• 🤩 Blackstone's stock has been on a downtrend since November 2021 and is below key moving averages.
• 😬 Expected year-over-year declines in 2022 and 2023 indicate a grim future for the firm's earnings.
• ❓ The stock's volatility has increased, creating an opportunity for option sellers.
• 🤑 The short strangle trade involves selling out-of-the-money put and call options with the same expiration date.
• 🌸 This strategy generates premium for the option seller, but it comes with the risk of unlimited losses.
• ❓ The implied volatility percentile of 71 suggests that Blackstone's volatility is above average.
• ❓ By selling a January 20th 65 put and 83 call on Blackstone, a trader can collect $245 in premium.

Questions & Answers

Q: What is a short strangle trade?

A short strangle trade is an options strategy where an out-of-the-money put and call are sold. It aims to profit from a sideways-moving stock and high volatility. However, the trade comes with unlimited loss potential if the stock makes a significant move.

Q: Why is the presenter interested in selling options rather than buying?

Selling options can be profitable when volatility is high, as it allows the option seller to collect premium. By selling a short strangle, the presenter aims to take advantage of the increased volatility in Blackstone's stock.

Q: How can the trader protect against potential losses in the short strangle trade?

To prevent losses from becoming excessive, a trader can place a stop at the break-even points, which in this case are $62.55 and $85.45. This helps limit losses if the stock moves sharply in one direction.

Q: What should traders be cautious about when executing a short strangle trade?

Traders need to be confident that the stock will remain relatively flat during the trade. The potential losses in a short strangle trade are unlimited and can outweigh the potential gains.

Summary & Key Takeaways

• Blackstone's stock has been in a strong downtrend since November 2021, and it is currently below key moving averages.

• The firm's future earnings look bleak, adding to the negative outlook for the stock.

• The high volatility presents an opportunity to be an option seller through a short strangle trade, which involves selling an out-of-the-money put and call with the same expiration date.