2/21/2021 Plan:
This week we look at a company that does Nothing… Pershing Square Tontine Holdings (Ticker: PSTH)!
2/21/2021 Plan (continued):
- PSTH – Sell March 19th 25/22.5 put spread for 0.50 OR
- PSTH – Sell March 19th 25/20 put spread for 0.70
- AMD – Sell March 19th 80/77.5 put spread for 0.35 OR
- AMD – Sell March 26th 80/75 put spread for 0.78
- ALL – Sell March 19th 95 put for 1.00
- TGT – Sell March 12th 170 put for 1.54
- Prices are as of market close 2/19/2021, actual fill and strikes may differ depending on Monday’s open, post will be updated accordingly.
- All trades are for educational purposes and do not constitute advice
2/21/2021 Commentary:
PSTH is a Special Purpose Acquisition Company (SPAC) or a “blank check company”. It is run by the hedge fund manager, Bill Ackman. The purpose is to find another company to acquire with the funds raised during the SPAC’s IPO. These have been ‘hot’ recently – DraftKings was a recent success story for SPACS. Until an acquisition is made, there really is nothing happening with the company – no earnings or anything. This is a speculative name and really is a ‘bet’ on Bill Ackman’s ability to close. The market is assuming there is a lot more upside than downside in the name which you can see clearly with the way the out of the money calls are bid up.
The put spreads offer a high return over the next month assuming PSTH remains above the $25 level. I am personally long the underlying and would pick up more at $25.
AMD is a straight forward put spread sale with the assumption that we stay abo 80 for the next month. AMD is currently trading near 89.50. A couple spreads are provided to allow you to choose the risk/reward you prefer.
The ALL and TGT puts are a couple that were picked up by our tools as good risk/reward. Do NOT place these unless you are willing to take shares or roll the puts.
Reach out with any questions on this or any other trade!
2/22/2021 Entry:
PSTH Mar 19 25/22.5 put spreads were sold for 0.48
AMD put spreads also Mar 19 could be sold from 0.46 to 0.70 as AMD continued to drop during the day. With a big down move like it had, it is ok to pass on this trade, or consider lower strikes or give it a day to stabilize.
2/28/2021 Update:
The PSTH put spreads are now at 0.60 at the mid point for a paper loss of $12/spread. I’m quite content to leave these on. They will take a while to decay so we remain patient. I may actually sell some more if I can get 0.60
The AMD put spreads are 0.60 at the mid point as well. Depending on where you sold them (if you sold them) you are either up a bit or down a bit. I am holding on to mine for the week, unless we breach 80 at which point I’ll consider closing for a small loss.
3/7/2021 – Update:
PSTH had a Huge range on Friday (along with much of the rest of the market) and dipped down to 23.13 before finishing the day at $28. SPACS are going to be volatile. Size accordingly. Our put spread is worth 0.45 for a small profit. They can be closed to reduce volatility or left on. I’m doing the latter. I’m also ok pickling up shares at $25.
The AMD trade which we suggesting considering passing on as AMD continued to drop that day has breached the short strike. We will still continue to follow it as there is plenty to be learned. Last week we talked about getting out if it breached the short strike. This happened Thursday AM shortly after the open and one could have used that to cut losses or at least take some of the position off the table. The put spreads are currently worth 1.27. They don’t expire until next week, so we have a few choices. We can simply cut losses first thing Monday. We can wait and see if the name recovers – if the market continues a move up, AMD is likely (although not guaranteed) to go up with it. With the stock between our strike prices, theta is no longer on our side, so we do need to see a move up to benefit. You can review the actual theta of the position or you can see that we are 1.48 ITM and the position is worth 1.27. If nothing else changes our position will be worth 1.48 at expiration – therefore theta is working against us (reach out if this isn’t clear).
What else could one do? We could roll the position for a credit. Right now the 77.5 strike isn’t traded again until April 16th and you’d only get a small credit. We could do the 80/77 for a credit on 1 April and pull in another 0.18. Do note that we’d be taking on another 0.50 of risk per spread. I did take the trade (despite suggesting most to pass/wait for stabilization) as I’m happy to add some shares and trade out of it. I’ll be waiting to see how things develop in the market this week before much further action. I am ok taking a total loss on the size I put on. If you are not – then simply get out. Also, please reduce the trade size next time!
3/14/2021 – Update:
PSTH is at 28.40 and our put spreads expire this week. They are currently profitable. PSTH can move a lot, so if you want to reduce volatility in your portfolio, simply book the win. I’m leaving them on as I’m ok adding shares if it finishes the week between 25 and 22.5 The most likely outcome is they expire worthless.
AMD recovered some last week and our put spreads are currently out of the money. I would close out of some/all of these spreads when they are profitable if you have a chance. Our strikes are well within the expected move for the week. As mentioned last week, we can adjust as well if we want to extend the trade (rolling to a further week). The difference this week is that we are now theta positive as the spreads is OTM. I know most of our traders did Not take this trade, but as it is a good learning experience, we’ll continue to follow it.
3/21/2021 – Close:
PSTH put spreads all expired worthless, brining in another $48 per spread or $240 for 5.
For the AMD put spreads, there were plenty of chances to close out profitably earlier in the week as recommended. If you waited until the absolute last day, then you had a few options – roll the put spread to another week for a credit, close for a loss, take assignment of the stock, or even just roll the put for a credit (and taking more risk). Personally, I closed out most early in the week, but Did leave some on until Friday. I then sold the long puts (77.5 strike) for 0.50. Then, I rolled the short put to the March 26th expiration and down to the 79 strike for an additional 0.56 credit. Now I’m short puts on the 79 strike that expire this week and I’ve taken in more credit. The risk profile also changes significantly as I have $7900 of downside, but I’m happy to take ownership of the shares and I’ve taken in some more credit to help offset. This is not the most straightforward approach, so if there are questions, please do reach out.
