AMCX Put Spread

Breaking Bad, The Walking Dead, Better Call Saul, BBC America, Sundance, IFC – AMC Networks (Ticker: AMCX) owns them all. With content ‘king’, AMC’s portfolio of properties commands premiums from streaming giants like Netflix (Ticker: NFLX). There is, however, a lot of competition and AMCX was in a steady decline since March.

AMCX 1 Year Chart, with IV/HV 2019-12-02

What initially drew me to the stock was that IV has been regularly above HV for the last 6 months. This means that the options market has been regularly pricing options more than the underlying volatility of the stock.

Given the low P/E of the name and a bullish view of the stock, I selected a bullish put spread:

  • Sell AMCX 17 Jan 2020 35 Put for $0.98
  • Buy AMCX 17 Jan 2020 30 Put for $0.27

Total credit of $71, with $429 risk per put spread, or 16.6% risk/reward in 46 days if held to expiration and AMCX remains above 35

Flash forward to 12/24/2019 and AMCX has had a decent run up, IV has come down, and we get out for a $0.15 debit

2019-12-24 AMCX

We profited $56 on $429 of risk for a 13.1% return, or 216.6% annualized. Note that we could have held the trade to expiration to try and pick up the extra $15/contract, however I would rather close the trade and look for other opportunities rather than tying up the capital to squeeze the last 20% of profit.

Now that you’ve picked up some extra cash with this trade, why not support AMC and Option Salary and purchase The Breaking Bad box set – one of my all time favorite series:

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