T is moving again, so buy calls or butterflies?

Take a look at Mark’s butterfly webinar today!

Big rotation into dividend paying names

T is moving again as the Great Rotation in stocks continues. Names like WBA and other high yielding stocks are starting to catch everyone’s attention as the President Tweets out that we should have 0% rates and refinance all US Gov debt. I posted a blog awhile ago on a strategy involving dividend paying stocks and I thought an update on the idea would be good. Mark is doing a webinar on butterflies tonight and a comparison might be instructive.

Calls or Butterflies

T is up around $5 in 3 weeks. That is an enormous move for a stock like that.  Generally I want to buy calls when I think something is going to rip or I want time to make the calls pay.  If I am thinking butterfly for an equity the trade is generally more short term and to a specific spot  Right now I don’t have a spot in mind for T except higher until the dividend yield ducks below 4% and right now it pays $2.04 per year on a $38.75 number.

T making 2 years highs and a fat divy

Screenshot by Cboe Livevol

When to buy a fly?

When option premium is juicy, calls butterflies make decent trades. Even with the run up in T, a call fly is really just a near the money call and some dirt cheap upside. If there is not a bunch of “juice” to decay into, long calls make a better idea. Stocks like NFLX or TSLA make decent upside call flies because there are real dollars savings there. The general rule is if the juice is cheap, buy the call. If the juice is expensive, buy the fly.

Disclosure: Positions in T, TSLA

Follow Andrew@optionvol You can hear Andrew on Option Block every week.

Follow Mark@optionpit You can hear Mark on Volatility Views every week.  Volatility View Crystal Ball is on Friday’s.

Leave A Response

* Denotes Required Field