My First Call Synthetic Long Option - Part 2
Maxar Technologies Inc. provides earth intelligence and space infrastructure solutions all over the world. The Earth Intelligence segment offers geospatial information, applications, and analytic services and the Space Infrastructure segment provides space and ground based infrastructure, robotics, components, and information solutions.
One month ago, the Trump Administration threatened to pull out of the Open Skies Treaty that permits. The Open Skies Treaty which was signed in 1992, permits each state-party to conduct short-notice, unarmed, reconnaissance flights over the others' entire territories to collect data on military forces and activities. If the Treaty is dismantled, this could increase demand for satellite surveillance or Maxar’s services.
About a week ago, Maxar acquired Vricon. Vricon is a global leader in satellite-derived 3D data for defense and intelligence markets. But Maxar thinks Vricon's can penetrate the autonomous navigation and 5G telecommunications network planning markets.
Intelsat S.A., together with its subsidiaries, provides satellite communications services worldwide. Intelsat operates the world’s first Globalized Network, delivering high-quality, cost-effective video and broadband services anywhere in the world. Their integrated fleet of approximately 50 satellite and terrestrial connectivity already reaches 99% of the world’s populated regions.
Maxar has an agreement to deliver the Galaxy 31, Galaxy 32, Galaxy 35 and Galaxy 36 satellites to Interstat in 2022. The satellites will provide primarily video distribution services to customers in the continental United States and further support the US 5G initiatives.
I don't know this business or sector, but a month ago, I noticed Smart Money buying over 12,000 call options at the $20 strike price that expired on Aug 21st. So I thought there was no better time to try my first Call Synthetic Long option strategy.
Synthetic stock options are option strategies that mimic the potential of either buying or selling a stock using call and put options. A Synthetic Long Stock involves buying a call option and selling a put option.
So I bought an Aug 21 call option at the $20 strike price and then in an attempt to pay for the call, I sold two Aug 21 put options at the $15 strike price. So my upside is unlimited, but more importantly, my downside risk is I could lose the money I paid to buy the call options, but if the stock went to $0, I could be put the stock at $15 which would be a $3000 lost.
Yesterday, I noticed usual options activity in Maxar. The Smart Money bought over 12,000 call options at the $20 strike price that expires on Aug 21st. Instead of getting long through call options, I decided to put on my first Call Synthetic Long option strategy.
Synthetic stock options are option strategies that mimic the potential of either buying or selling a stock using call and put options. A Synthetic Long Stock involves buying a call option and selling a put option.
So I bought an Aug 21 call option at the $20 strike price and then in an attempt to pay for the call, I sold two Aug 21 put options at the $15 strike price. So my upside is unlimited, but more importantly, my downside risk is I could lose the money I paid to buy the call options, but if the stock went to $0, I could be put the stock at $15 which would be a $3000 lost.
However, three weeks later closed the trade as the price action on the stock stalled...suffering about $250 lost.
The company reported earnings this past week and wall street loved what the company had to say. Maxar Technologies traded high after it reported Q2 revenue of $439M vs. expectations of $27.95M, primarily driven by $15M increase in the Earth Intelligence segment and a $3M increase in the Space Infrastructure segment. Net income was $306M vs. $148M in year ago quarter. In addition, total order backlog was $1.9B vs. $1.6B as of December 31, 2019.
"Demand has remained resilient in the current environment as our customers continue to rely on us for important national security and commercial missions. We generated another quarter of solid revenue growth in Earth Intelligence while Space Infrastructure returned to growth on the heels of recent diversified bookings from both civil and commercial customers," said Dan Jablonsky, CEO.
"Given that, and the recent addition of Vricon, we are modestly increasing our revenue guidance to flat to mid-single digit growth for 2020 and increasing and narrowing our outlook for Adjusted EBITDA to a range of $415 million to $445 million.2"
What I'm starting to realize is if I don't know the business sector, relying on the Street Money isn't quite enough for me. That why I bailed on the trade even though I had four more weeks before the options expired. Had I held onto the call options,
and closed out the put options,
I would be up about a little over $1000. So what's the lesson here, if I'm going to follow the Smart Money in a trade, they are right more than they are wrong, so just use a 50% max loss target and let the trade ride.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
Posted Using LeoFinance
