Virgin Galactic “Covered Warrant” Trade
If you’ve been reading my blog you know I’ve been trading Virgin Galactic warrants a lot the past few months. Buying before the “faux IPO” and flipping into the first day move. Then picking the warrants back up as the stock held $7.
I went into arbitrage mode last week as the stock went parabolic and this post details what that trade looks like over the past week.
IF you understand this post and have an idea of what I’m doing and would like more trades like this, the following is pretty much the email I sent to Warrant Observer subscribers earlier today (1/29/2020).
I emailed them last week to detail the trade and let them know this was what I was personally putting on. This is what I would consider a relatively low risk, high reward trade idea.
IF you have NO IDEA what this post is talking about, a Warrant Observer membership probably isn’t for you. Sorry.
I would suggest learning a little about options first (you can do it in a few weeks to a month, or less if you’re motivated) and then coming back and rereading to see if you might be interested in doing trades like this.
If you are, you’re welcome to join us here:
The trade:
I put on my current position over the course of Wed. (1/22), Thurs. (1/23) and Fri. (1/24) (when I was trading it in the McDonald’s parking lot) of last week.
Here are my average prices, bought SPCEWS at $7.24, sold Feb 17 calls at $2.65 (45% of position), sold Feb 19 calls at 2.55 (55% of position). I placed most trades simultaneously, buying warrants and shorting calls, and used a 100% hedge.
As of now that position is up right at 11%. That’s a well over 500% annualized gain, which is a bogus way to look at it, like you’re going to make 11% every week, but some people like to use that to help manage positions, so there it is.
So, there are now a few options.
1. 11% in a week, praise the lord and pass the ammunition, I’ll take it every time, cash me out
2. Take off some of the position, locking in gains, sell warrants and buy back calls (I’d do the 19s)
3. Buy back the 19 calls here, and be long warrants, with the option to sell more calls in the next few days, at various strikes for Jan. e.g., sell deeper in the money calls for more protection, or further out to capture premium but let me be long”er”, or
4. Sell further out March calls, which have a decent premium on them.
Considerations:
1. Because of the dip in the price of the common below $18 the warrants will not “disappear” until after the call options expire on Feb. 20. (That’s doing the math on the over $18 for 20 days out of 30 that I sent the audio recording on.) So, I can maintain the position, if I so desire, all the way through the call expiration.
2. Decent likelihood that Virgin announces SOMETHING in the next month that spikes the stock giving me an opportunity to take off any position I have on at a nice profit.
3. The market. Seems stable at this point, Coronavirus may give another jolt, but probably won’t be a big one for SPCE. Earnings are coming in somewhat mixed, but don’t look to be a drag on the overall market.
4. Outlier – Fed will be on hold, and may even throw a bone to the market, “ready to step in if Coronavirus becomes worse”, etc. etc.
My current inclination is to cover some of the 19s here and see what’s next.