- Fastly is one of the it stocks right now. After trading as low as $11 in March the stock has now crossed the $100 level.
- The stock is up over 100% in the last month alone.
- We look at some defined risk spreads.
Here is the 3 month expected move in the stock, via Options AI technology:
The move is massive, but considering what the stock has done just over the past few weeks it makes sense. However, this has been a largely one way move and the chances of that continuing unabated lessen the longer the time frame.
Ways to Play
Bullish - As we see in a lot of these high flyers, demand for upside calls can bid up prices for out of the money options in a way that call spreads end up costing roughly the same with much lower breakevens. Here's an example:
This is the August +100/-125 call spread, trading 8.70:
This trade breaks even at 108.70 in the stock, so not absurdly higher from where it's currently trading (102.50). But what's more interesting is the components of this trade:
As you can see the total cost of the spread is actually less than what it would cost to buy the 125 call outright. The breakeven of 108.70 is substantially lower than the breakeven of 134.70, obviously.
And performance wise, people often get worried that the inclusion of the short leg of the spread may limit profits on a sharp move higher. But that is rarely the case versus an out-of-the-money call because the deltas within the spread are just as effective within the confines of the spread with the added benefit of being able to become in-the-money faster.
Neutral - The fact that the stock is now near 100, after a 100% move in the past month may mean the stock starts to see action in both directions, with 100 serving as a bit of a pivot point. For those looking for neutral views, with the idea that options may now be over-pricing moves from here, here's a neutral price target via Options AI technology:
This condor sells to both the bulls and the bears, with a short call spread above bullish consensus and a short put spread below bearish consensus. The July 31st expiration is before earnings in early August and intended to expire before that event.
Bearish - Here is the trade comparison for a bearish target in August to the bearish consensus near $75:
The short call spread actually suffers from the upside reverse skew and therefore isn't as good of a risk/reward or breakeven as you would typically see. The long +105/-75 put spread has a breakeven of $92, reflected in its 32% prob of profit.