HIMX – Another Breakout

I sold HIMX April 9 calls and bought HIMX April 10 calls today.

HIMX has been great for the longs over the course of the last 2 months.  I posted about this a couple of weeks ago (HIMX – Back From The Dead?) and again the following week when I rolled my position the first time (HIMX – Gaining Momentum).  When I rolled my position on March 17th, the $9 call was about 40 cents out of the money, but this morning, we’ve run to ~$9.50.  Given how far these are in-the-money, it is time for me to again re-evaluate and look for a more leverage play if I want to stay with it.

Let’s look at a daily chart to review the game plan:

HIMX 1.png

Chart from FreeStockCharts.com

I want to focus here on the breakout I’m seeing.  We’ve been running up with the 20-day simple moving average providing support.  We tested that are multiple times in the last week, but continue higher.  After a nice run up last week, we formed a wedge with lower highs.  Yesterday, the market was able to break out of that wedge and today added confirmation.  It seems to me like the next logical move would be a breakout above the recent high of $9.68 and then look for a move toward $11.  Timing is a bit of a question, but it looks to me like the momentum is building again, similar to what we saw in mid-March when the market ran from $7 to $8+.

Let’s look at the Implied Volatility levels:

HIMX 2.png

Chart from LiveVol

We are still able to get some decent leverage via options – it’s not as good as it was a few weeks ago, but if we pick up momentum on a rally like we did about a month ago, then this realized volatility will spike as the price spikes – these are both important.  If we see the price drift higher, then adding upside leverage is a bit of a waste as a long stock or long call spread position would be a preferred type of positioning.  I’m looking for a move toward $11 now, so I like replacing my in-the-money $9 calls with more of the $10 calls.

Let’s dig into the Risk/Reward profile of a 1×2 call spread, as this is the really interesting trade for me.  If I sell the $9 call for $0.60 and buy 2 of the $10 call for $0.15, I will collect $0.30 and maintain roughly the same net Delta exposure.  If the market rallies above $10.70 by expiration 2 weeks from today, then this trade will break-even – the $9 call will be worth $1.70 and the $10 call will be worth $0.70.  If the market fails to breakout and fades back below $9, I am also net better off as I have collected $0.30 while both calls will expire worthless.  The profit window for me on this 1×2 trade is below $9.30 or above $10.70.  Anything in between is bad for me.

I do believe the logical direction here is for either an acceleration of the move to a price around $11 or a failure back below $9 in the short-term.  In either of these cases, I am better off having rolled up my in-the-money calls by trading this 1×2.  It is certainly a risk as I am giving up the upside of a smaller upward move, but given that I got into the $9 calls for about $0.30, I am playing with the house’s money after executing my trade today, and I like being in that situation.  Those that do not see the same leveraged upside will want to look for a stock position or a longer-term option, but if you are looking for leverage on a breakout, I am a fan of the April $10 call here.

 

 

All Services and Content Are Provided for Educational and Information Purposes Only and Are Not Intended as Legal or Financial Advice.

The information and content provided in or through these Services is for educational and informational purposes only.  By accessing and/or using the Services you acknowledge that the Services are not intended to be a substitute for legal, investment, or financial advice that can be provided by an attorney, accountant, and/or financial advisor. You further acknowledge that you should not rely solely on the Services in making any investment or financial decision, and should always check with your financial advisor and tax advisor to determine the suitability of any investment. 

All information provided in or through these Services is strictly informational and is not to be construed as advocating, promoting or advertising registered or unregistered investments of any kind whatsoever. The information is provided “as-is” and is not guaranteed to be correct, complete, or current. Trade Academy does not guarantee that you will attain a particular result, outcome, or earnings, and you accept and understand that each individual’s results will vary and depend on numerous factors.

Trade Academy is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission (“SEC”) or the Financial Industry Regulatory Authority (“FINRA”). Further, owners, employees, agents or representatives of Trade Academy are not acting as investment advisors and might not be registered with the SEC or FINRA.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s