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Matthew Whiz Buckley
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Matthew Buckley is the founder and CEO of Top Gun Options LLC and a Managing Partner at Wealth Creation Investing LLC. Matt was formerly the Managing Director of Strategy for PEAK6 Investments, L.P., one of the largest volatility arbitrage options trading firms in the country. He was the founder... More
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Top Gun Options
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  • Top Gun Options Seller Of Gulag...Ehhh...Sears 0 comments
    Mar 3, 2012 3:53 PM | about stocks: SHLD, GGP

    Top Gun Options Seller of Sears
    Miami, FL

    Strategic Mindset: Bearish on retailers, specifically this Gulag.

    Target: Sears (NASDAQ:SHLD) currently trading at $75.96

    Commit Criteria: Visit a Sears lately? Dirty, little to no employees who seem actively interested in not helping you buy anything, with the overall atmosphere of a store in central Cuba or North Korea. With closing stores and negative earnings projections, there are lots of fundamental reasons to be bearish on Sears. Hedge fund giant Eddie Lampert recently declared defeat and announced that the troubled company would be selling scores of stores to General Growth Properties (NYSE:GGP). After a pop in the stock following this 'good news' (huh?), the stock is no longer cheap, and appears to be getting hypoxic at these levels. The Top Gun Options trade team is also forecasting a decrease in volatility, which would point us in the direction a positive theta credit spread tactic.

    Tactic: Bear Call Spread (also known as a Credit Spread)

    A shorter term Bear Call Spread for a credit. The plan is to hold just long enough to achieve an acceptable gain, and most likely exit prior to April expiry.

    Tactical Employment:

    1. Sell to open 10 April 75 CALLS
    2. Buy to open 10 April 80 CALLS
    3. For a net credit of $1.90 per share or $1,900 (53% probability of max profit)
    4. Maximum overall risk thru April expiration = $3.10 per share or $3,100 (38% probability of max loss)
    5. Maximum reward thru April expiration = $1,900 (100% of net credit received)
    6. Breakeven point thru April expiration = $76.90 (57% probability of BE)

    Midcourse Guidance:

    Stop Loss: We will consider a STOP in the Primary/Intermediate model portfolio if the stock moves above the short strike of $75, and set an alert accordingly.

    Profit Target: The trade objective is to exit the trade prior to April Expiration with 70% or more of the maximum profit.

    Threats to success: Hedge funds loading up on this stock, news of a turnaround, or general market bullishness could all threaten this trade.

    Eject Criteria: We'd eject from this position using standard Top Gun Options trading rules of engagement - 50% loss of credit received, or .95. We'd most likely bail way before this point depending on why the stock is continuing to move up. Join us for Options Weapons School next week to review this trade and other skill-based trades in addition to 2 live trading events, all on us.

    Exit Tactic:

    1. Buy 10 of the April 75 CALLS to close
    2. Sell 10 of the April 80 CALLS to close

    TGO Final Words: Lampert had high hopes in 2005 that he could turnaround the fading retailer and fashion the department store chains as 'me too!' Walmarts. We were sellers of that from the get go. Interesting how billionaires think - just because they're successful at one thing doesn't mean they're Jedi Masters at everything. Exhibit A. We have a couple of other exhibits we could list as well but we have limited space…

    Stocks: SHLD, GGP
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