Option Trade For Veeva Stock: Taking Advantage Of High Implied Volatility

TL;DR

Learn how to execute a butterfly spread trading strategy using the VIVA stock, taking advantage of high implied volatility and a defined price range.

Transcript

[Applause] hey option traders for today's option trading strategy we're going to take a look at a butterfly spread in viva the stock has popped up on our radar today as it is showing an implied volatility percentile reading of 83 percent this means the current level of implied volatility is higher than 83 of the readings we've seen in the last 12 m... Read More

Key Insights

• ✋ VIVA stock has a high implied volatility percentile reading of 83%, indicating a potential trading opportunity.
• 🧡 Butterfly spreads are ideal for stocks with high implied volatility and a defined price range.
• 😫 Thinkorswim is a trading platform that allows users to easily set up options trades, including butterfly spreads.
• 🤑 It is important to virtual trade a butterfly spread before risking real money due to its complexity.
• 😜 VIVA is ranked number one in its industry group and has strong composite and EPS ratings.
• 😫 Earnings for VIVA stock are set for March 2nd, which may add additional risk to the butterfly spread trade.
• 😚 Options trading is highly risky, and investors can lose 100% or more of their investment.

Questions & Answers

Q: What is implied volatility and why is it important for butterfly spreads?

Implied volatility measures the market's expectation of a stock's future price fluctuations. High implied volatility makes butterfly spreads more profitable as it increases option premiums.

Q: How does a butterfly spread work?

A butterfly spread involves buying an in-the-money call, selling two at-the-money calls, and buying one out-of-the-money call. It profits when the stock stays within a defined range and benefits from a drop in implied volatility.

Q: How can an investor set up a butterfly spread trade on Thinkorswim?

On Thinkorswim, type in the stock ticker symbol (VEEV), select the contracts expiring in April 2021, choose the butterfly strategy, and specify the desired strike prices. Thinkorswim will automatically set up the trade.

Q: What are the potential risks and rewards of a butterfly spread?

The maximum risk on the trade is the total premium paid, while the maximum gain is calculated by taking the difference in strike prices minus the total premium paid. A good aim is around a 20% return on investment.

Summary & Key Takeaways

• The VIVA stock has high implied volatility, making it a good time for short volatility trades like butterfly spreads.

• Butterfly spreads profit when the stock remains within a defined range and also benefits from a drop in implied volatility.

• To execute a butterfly spread, an investor would buy an in-the-money call, sell two at-the-money calls, and buy one out-of-the-money call, with a potential 20% return on investment.