Virgin Galactic, the Trade That Keeps On Giving
My sister and I recently sold my mom’s house. Which meant lots, and lots of cleaning and going through STUFF.
One piece of stuff, that made me smile when I saw the box cover, was my old 75 in 1 electronic project kit.
As a kid I spent hours and hours hooking up wires in that thing to make a light come on, or a buzzer sound.
I’d bend the little wire stack that looked like a tiny spring standing up straight, and in would go a red, or yellow, or green wire…I think they were color coded according to length.
It was exciting to do the projects and see if they worked, but what captured even more of my time than following the project book, was “tweaking”.
Could I make the light, which I had just wired to come on, blink? Or, could the buzzer buzz, and then stop and buzz again by placing another wire?
You could do soooo much, in addition to just using the instruction book, if you just let yourself play. And that’s exactly what I did.
Fast forward, ahum, a few years, and I’m still tweaking and playing, just doing it in the markets instead of with an electronic kit.
Tweaking for money
These days my tweaking is done with stocks, options and warrants.
I wrote a post a few days ago about how trading, with all of its various permutations…using stock, options, and warrants, and buying, selling, or shorting…were all like tools in your toolbox.
None is better, or worse, than the other, they’re just effective at different times depending on what the job is you need done. The more proficient you are with a variety of tools, the easier it is to build a house.
Tweaking is what you get to do with the tools once you know how to use them. It’s turning that screw one half turn to make it perfectly tight without stripping it.
Recently, I’ve been doing some tweaking with the warrants and options around Virgin Galactic. Gotta say, its quickly becoming one of my favorite stock, warrant and option combos.
Just Like the 75 in 1
From here on out, it’s going to get fun, complicated (if you’re not into this kinda thing) and profitable. The rest of this post is for paid Warrant Observer members.
This is exactly the kind of stuff I write to them that bores them to death, but they know they can learn to make money with it, so they indulge me. (If it turns out it’s the kind of tweaking you enjoy as well, then join us, we’re a friendly group.)
Here we go.
A couple of weeks ago I told you I was buying Virgin Galactic warrants and selling calls against the position. I went over the trade as I was doing it, and posted the details in the forum as well, but to quickly recap…
On 1/22-1/24 I purchased SPCEWS at an average price of $7.24. I sold the Feb. 17 calls against 45% of the position, and the Feb. 19 calls against the other 55%. (I was over long from my previous purchases of the warrants, but that’s not relevant at this point.)
I walked you guys through the thinking for the trade, including the $18 call provision, which I had also recorded an audio for you guys about.
A week later, after the common had dropped 21% from it’s high, and then settled in, the trade was up 11%. We went through four different options at that point ranging from, take the profit and run, 11% in a week, better than a sharp stick in the eye, to rolling to the March calls.
I told you I would probably buy back some of my $19 strike calls and be overly long warrants.
I considered this a relatively low risk trade, given that I was willing to be long warrants if the stock came in, and the potential profit in the position was around 30% in one month.
The options had a TON of premium in them, and the warrants had none, which was the initial impetus for the trade.
That gets us to this morning.
Further Tweaks, Earnings, and The Call Provision
So, I sent an email out before the open, after commenting in the forum last night that the stock closed well yesterday, letting you know that it looked to add to those gains and was up pre-market.
I thought we could add a few percentage points to our trade. As I said in that email I think you can either trade around the position, or let it play out further into February, and collect the decaying call premium.
My overall position, taking into account the few calls I covered last week, was up 19% by the close today.
Let’s dig into the weeds a minute on the parts.
First, short the $17 strike Feb. calls. That has played out at this point to a large degree with the call premium dropping substantially from when we put this position on.
Couple of options.
- Take it off completely. There is about $.40-.50 of premium in the option left to pick up if you hold to expiration and it doesn’t drop through $17, and about $.20 of premium in the warrant…which could drop back to zero where it was when we were putting these on.
- Or, you can hold it for 2-1/2 more weeks to collect the $.40-.50.
- Or, roll up to a higher Feb. call strike (less protection to the downside, but you’ll capture more premium if it stays here or moves higher).
- Or, cover the call and be long the warrant. Or, sell the warrant and be short the call (not recommended).
See, lots of tweaks available.
If it stays here or moves higher, at some point this week I will likely buy back the 17 call and sell another higher strike call, maybe the 21 or 22.
I actually did sell a few Feb 21s today against the warrants I was long from covering some of my Feb 19 short calls last week.
Now, the 19 strike calls. There is obviously more premium in these, another $1.30 to capture if the stock keeps going as it has been. Same options here as the 17 strikes.
I’m inclined to leave these alone for now. And, be content with rolling my 17s, and possibly being long warrants. I’d love to cover a few of the 17s on an intraday pullback if possible, and increase my long warrant position.
So, that gets us to earnings and the call provision.
Run Into Earnings?
I think earnings are going to be a continuation of the road show that has this thing flying now. Virgin Galactic has announced earnings will come out after the close on February 25th, so after the Feb options expiration.
As I mentioned when it started to take off earlier in January, management was hitting all the space (and any other money related) conferences and whipping retail into a frenzy over the “story” of Virgin Galactic.
I mean, come on, these guys aren’t selling one more case of Coke…they’re sending regular people to SPACE for God’s sake, and at a quarter million a pop.
So. Earnings. We know they don’t have any, so it’s not going to be “they exceeded by a penny”, or “they missed by five cents”. Who cares.
It’s going to be, “We are Virgin Galactic and WE FLY PEOPLE TO SPACE, look at ALL of these REALLY cool pictures gosh darn it…” And with that they’ll go over their schedule for the year, and whip the analysts into a boot licking frenzy for Sir Richard (LOVE that guy, btw.)
So, it’s either going to run higher going INTO earnings, or after earnings, or possibly both. (All we need is for someone like Cramer to call them the Tesla of space, and it’s off to the races, haha.)
With that, I want to be at a minimum long warrants and short some mix of calls, for a conservative position. And just long for at least some of my position.
Finally, the warrant call provision.
First, there is no way the call happens prior to the Feb options expiration, that’s the first thing of note.
Second, it can’t happen after options expiration, but before the earnings.
At this point, the earliest it could happen would be early March. I’ll keep the dates and update you as it grows nearer. (It is 20 out of 30 TRADING DAYS, so if you’re playing along at home don’t count weekends or holidays on which the market is closed.)
At some point it could impact premium we may be capturing in the March calls, but I’m not concerned about that yet.
That’s it. I’ll keep you updated pretty much daily as I trade this, in the forums and via email…if you’re a Warrant Observer subscriber.