I’m an avid Science Fiction reader from way back in my teens (and I do mean way back). I’ve read hundreds of SF books. Some of my favorite authors are Clark, Asimov, Heinlein, Niven, Pohl and the like. I’m a more hard-core fiction than fantasy – probably because I’m a techno-geek of sorts and love to read about what these people dream up for the future. There is one company in the US that has taken a page from many of my favorites and went ahead and invented it: the da Vinci robotic surgery system by Intuitive Surgical (ISRG).
If you haven’t read up on what this company is doing, then you should Google them and see what all the buzz is about. Their system is becoming very common in the US and many other countries. I have a few friends who have had prostrate surgery using da Vinci without complications and have nothing but good things to say about the entire process.
Two things happened to this company on Friday: 1) they announced earnings and 2) they received approval to use da Vinci is Japan, and we all know that the Japanese love technology. The stock closed up 11.78% on Friday when the rest of the market fell 5.08% this week. I won’t go into the details of their earnings except to say that they were solid as usual. What I do want to do is think about some spread trades we can do on this huge move.
Looking at the chart below, you can see that this week (the last 4 candles) ISRG followed the SPX pretty closely, at least as far as up and down days are concerned, but only lost 0.43% this week before Friday’s launch into orbit. To me that means this stock is resistant to the extreme moves lately in the markets, but not immune to the direction.
What I like best about moves like this is that the next day or two is going to tell us what kind of high probability spread we can enter to capture the most theta in the least amount of time. My objective will be to close the trade in a week or two. You can plug any of these into the Analyze tab on TOS and move the date on your simulated trade out 2 weeks and see what your profit is. Here are just a few possible trades:
- If the stock moves within the candle from Friday (329 to 340) on Monday and Tuesday, then a FEB/MAR 320/340 Double Calendar looks very tempting, or even an Iron Condor.
- If the stock has two additional up days, then a FEB 350 Call Calendar may be the play or a 330/320 Bull Put.
- If the stock looks like it may move down to close the gap (less likely of all scenarios), then a Bear Call may be the most profitable.
- The quickest profit is a Long Calendar if the stock is moving significantly – up or down. Buying a Calendar OTM in the direction that the stock is moving will get you the most theta in the shortest time if the stock continues to move towards your strike price.
These are my ideas. If anyone has any others, I would like to hear them.
We are in uncharted territory on this stock with previous resistance of 359.59 back on 12/10/07. You can bet I will be watching Monday and Tuesday and I will let you know via Twitter what I will be planning to do.
- Jeff
