About two weeks ago, I wrote how Las Vegas Sands [LVS:NYSE] had been trading in a small range for several weeks, giving arise to great option writing opportunities (click here). Those that heeded the trade suggestions and continued, would have seen healthy profits.
Well, the shares of Las Vegas Sands are still trading in a tight range, although the range has shifted upwards by about $2. The shares have continued to resist breaking through above $46.50 and has held support in the high $46.00 range, give or take a few cents. It also helps that the upper Bollinger Band, which have also thinned over the last few days, indicating lower volatility, is floating below $47. I took the opportunity this week, earlier than usual, to write a short straddle on Las Vegas with the weekly 46.00 calls and puts.
The current premiums received on the pair is roughly $1.20, giving you a break even range of $44.80 to $46.20 (excluding commissions and SEC fees). This range gives downside and upside protection of over 2.6% each from the strike price.
Normally, I write the options on Wednesday or Thursday, but decided that I would rather take advantage of one extra day to capture a few more cents on time value. My outlook on the stock most likely won't change over the next few hours, unless significant news were to change that.
If you are slightly more bullish or bearish on the company over the next four days or risk adverse, consider implementing a short combination trade, instead of the short straddle mentioned here. One could cut their potential earnings today by writing a higher strike on the call or lower strike on the put. The 47 call expiring April 29 are trading at about $0.26 while the 45 puts are roughly $0.22.
A combination is less risky but also potentially more profitable, as it may require only two trades instead of three. It is only more profitable if the stock deviates further from $46 but still remains between $45 and $47. With a short straddle, one leg must be closed out, and the further away from $46, the lower the net profit. In this situation, if the stock closes near $45.30 or $46.70, the short combination would be more profitable than the above short straddle.
Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker.
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