I have decided to open a call option position here in $VZ, approaching this trade much like I would be by simply going long. However, this being an option position, three primary variables were taken into account when I developed an options trading strategy for a position in $VZ.
First, at what price would I be placing a mental stop if I were simply going long $VZ? Using my trusty Excel position sizing spreadsheet based on a few time and price based volatility variables, I determined that my stop would be in the 35.2 range. Next, a key component in option trading that is often overlooked is the necessity of taking time into consideration. Since I expect this trade to work quickly, I calculated that I will be holding the position for no more than 6 trading days. Lastly, I needed to determine my risk capital. 1% has served me well for many years, so I risked 1% on the trade.
Earlier today I purchased Sept 37 call options at 0.56. I will exit the trade based on my own discretion/technical indicators (for profit or loss…I’d love to see it get back to 37+), if the price of $VZ drops to ~35.2, or if my 6 day window is hit.