CCIV has been on an absolute tear higher. The stock has run from 20 to 70 over a month.
Why? Did they have good earnings? Analyst upgrade?
Nope-- they might bring Lucid Motors onto the market. (Might.)
CCIV is a SPAC-- Special Purpose Acquisition Company. I won't go into details on how these work, yet for the past 12 months SPACs have seen amazing price action to the long and short side.
The interesting thing about CCIV is that the Lucid deal isn't official-- it's all but assumed that this will be the target and a definitive agreement will be finalized... but it hasn't happened yet.
This risk is being baked into the options market, and gives us some great trading opportunities.
In fact, I think that the setups in the options market can give you much better risk-adjusted returns compared to buying (or shorting) the stock right now.
Let's take a look at 3 setups:
The Bearish Trade
Let's say you think the most recent rally from 40-60 is a bit much, and that the stock could have a sell the news event once the DA is reached.
It seems like it would be straightforward-- buy some puts and profit on the drop.
Not so fast! What we've been seeing with these momentum names is that the option prices are incredibly rich, and that even if the stock tanks, you may not make as much money as you think
Instead, consider bear put spreads. These remove the vega risk, and have an added advantage because you're selling an option that's at a lower strike price, so you start to get short vega if the stock drops.
As an example, you can buy the CCIV Mar 60/45 put spread for 8.50. At opex, you're profitable if the stock is below 51.50, and your max profit is hit if the stock is below 45.
This is not a "set and forget" trade, and you should aggressively trade around a core position if you want to be bearish on the name.
Get Paid to Buy The Dip
Because the deal isn't done yet, the option implied volatility is sitting at 240%-- that's pretty extraordinary for a stock that has rallied 50% in a week.
If you feel like you missed out, you could chance it and buy shares here... or you could get paid to buy the stock 50% lower than it is now.
Consider this trade:
Sell to Open CCIV March 30 Puts at 4.00
Right now the value of the option is going for 2.00, but the pricing we saw on Friday was double that.
If CCIV dips just a bit more, then you should be able to get good prices on this.
This is a put sale-- if the stock is below the strike price of the option, then you would own the shares at a cost basis of around 26.
Think of it another way-- someone out there is willing to pay you hundreds of dollars to buy the stock 30 points lower than it is now. If you're a believer that the deal will go through, then this is a good setup.
Stock Replacement Strategy
Let's say you own some shares and are up big on the name-- congrats! If you're concerned about losing some of your profits, you can convert the trade into options. This will drastically cut the capital involved in the trade, allow you to get back in on a dip, and have a nice profit kicker if it starts to run.
Here's the setup:
- Buy to Open CCIV 16April 70/85/95 Call butterfly for 1.40
- Sell the April 30 Put for 3.60
Risk Profile of the Trade
A few things are going on here. First you have the April 30 put sale, which can get you back in the stock at $30/share. You use the credit on this trade to finance the cost of the butterfly.
The butterfly gives you a nice payout if the stock trades between 70 and 95 going into April expiration, and you cap your profits if it moves above 95.
The math here is simple-- if you truly think CCIV can run to $100, then you should avoid this trade and either keep owning stock or buying calls. But if you think the downside risk here is a little high, you can put this trade on and take a ton of cash off the table.
There are tax considerations with selling stock, so keep that in mind.
If you like creative, profit-enhancing setups like this, then start your trial to my trade service today.
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