Cramer's COF timespread

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AAAintheBeltway

Jim Cramer, who frequently boasts about what a big hitter he was in options, posted a suggested trade in COF today. COF is hot because of takeover speculation on the heels of the JPM/ONE deal.

Cramer criticized all the action in the Feb 70 calls, saying they were over priced at $3, and instead rec'd selling them and buying the March 65's, which are now 7.20 ask, on a 1:2 ratio, ie buy twice as many as sold.

What do the experts think of this?
 
opinions stated are strategies revealed...

wouldn't surprise me if he was not only doing the opposite of his suggestion, but also doing the flank-ing of his suggestion, but anything but his suggestion...

option strategies are like shoppers trying to find the shortest line at checkout, if you say it out loud, then you cause a crowd to alter the anticipated short line (you were heading for) or trying to clear a line (similar to shouting fire in a crowded movie theater).

caution is advised, and perhaps you should frame your own scenario and execute an option play around it...
 
limitdown,

understood. I'm not really looking for trade advice, but I've found the discussion here of the implications of various trades very educational. This one strikes me as actually pretty interesting. March is not trading at much of a premium over Feb.
 
Quote from AAAintheBeltway:

Jim Cramer, who frequently boasts about what a big hitter he was in options, posted a suggested trade in COF today. COF is hot because of takeover speculation on the heels of the JPM/ONE deal.

Cramer criticized all the action in the Feb 70 calls, saying they were over priced at $3, and instead rec'd selling them and buying the March 65's, which are now 7.20 ask, on a 1:2 ratio, ie buy twice as many as sold.

What do the experts think of this?
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I think it's a good trade. I don't think he is really doing this trade just because the feb 70 calls are high but rather he is putting on a backspread at a good price. I think the march 70 calls are a better buy then the march 65's in terms of vol. Basically I think he is putting this spread on in case COF does get a takeover bid. He has unlimited upside and his risk is pretty low in this trade. But I think he is playing this for the takeover possibility not the difference in vol.
 
I think he posted that trade wrong. The trade is sell the feb 65 and buy two march 70's. Now that is a really good trade. I think he messed up.
 
Here is what he wrote:

No wonder Capital One is up this morning after what he said last night on the show.

What I find astounding, though, is the immense amount of buying in the February 70 calls. People are paying through the roof for them, accumulating at $3! More than a thousand of them!

Hold it -- that's nutty! It would be better to buy the March 65s 200 times for 6 and change and sell the February 70s 100 times for $3 to lock in a nice gain and live to trade again.

I used to do this kind of trade all of the time: Seize on the overvalued near-term calls and buy the deeper, undervalued next-term calls. That's what I would do now.

In other words, I agree with the thesis, I just don't buy into the February time frame.

By the way, if nothing happens in February, those March 70s will be pumped and could be sold again
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Mav, you may well be right that he meant buy the March 70's. Notice that is what he said on the last sentence.
 
The feb 65's are trading at a 42 vol and the march 70's are trading at a 36 vol. The feb 70's are trading at a 38 vol. I can't understand why he thinks they are overpriced. Hell the march 75 calls are trading at a 34 vol!
 
Quote from Maverick74:

The feb 65's are trading at a 42 vol and the march 70's are trading at a 36 vol. The feb 70's are trading at a 38 vol. I can't understand why he thinks they are overpriced. Hell the march 75 calls are trading at a 34 vol!
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A long Feb 70c/June 70c time spread looks like a much better trade. The Feb 70's are at 39 vol while the June's are at 33.
 
Quote from Hello_Dollars:

A long Feb 70c/June 70c time spread looks like a much better trade. The Feb 70's are at 39 vol while the June's are at 33.
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Yup, that is also a good trade. In fact there are about 10 better trades then the one he gave. Interesting.
 
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