Sold to open ENDP 7/8 expiration $17.50 strike calls

action

Sold short 10 contracts of ENDP 7/8 expiration $17.50 strike calls at $0.35. Total proceeds after commission are $334.55 or $0.33/share.

strategy

My ENDP position is really a premium selling position. Endo Pharmaceuticals stock is highly volatile, and its implied volatility is even higher. This might be the straw that breaks the camel’s back — I might lose the stock on this roundtrip. If so, it’s ok. This position has achieved more than I expected, and if it’s time to quit, I much rather realize a again than a loss.

But there are a couple of reasons, why I think the stock might actually finish the week below $17.50: First: There is a relatively large open interest in calls at $17 and $17.50: 491 and 457, respectively. The most OI any other strike has is 102 for the $15 calls. On the put side, there is no strike with any open interest above $17.50. So under the max pain” theory, there would be an incentive for market makers to pin” the stock underneath $17.50. Secondly and more importantly, the stock has been caught below its declining 50-day SMA for most of the past year. I do think it will break through that resistance, soon. But I think it might take until next week.

Endo Pharmaceuticals daily chart, from tradingview.comEndo Pharmaceuticals daily chart, from tradingview.com

July 7, 2016 at 7:03am · ENDP · sell to open · options


Previous:Bought to open CLD
Next:Bought to close ENDP 7/8 expiration $17.50 strike calls