In an extended blog post, the Daily Options Report discusses a few possible options trading strategies for 'high-growth darlings' that have fallen out of favor with Wall Street analysts. For illustrative purposes only, consider the example of Whole Foods Market (ticker: WFMI). When executives from Whole Foods recently acknowledged that 'they won't be doubling earnings every 6 months all the way out to 2011,' shares of the company tumbled from $65 to $45, before recovering to about $50 a share. That recent decline most likely leaves call buyers with high strike prices out in the cold. But what are the other options strategies that are available for Whole Foods, assuming a current stock price of $50, a 52-week high of $80 and a 52-week low of $45.5?
According to Adam Warner of the Daily Options Report, one strategy might be selling naked options (i.e. naked calls and puts):
'œIf you are of the mind to naked sell options somewhere, this is as good a spot as any. I am comfortable fading 50 and 55 line calls into strength here (high 40's, low 50's in the stock), and 45 and 40 line puts into weakness (if it approaches the recent lows), and thus legging short straddle.'However, this strategy does entail a certain amount of risk and may not be suitable for every investor: 'Now the disclaimer. Naked selling options has open ended risk. So it may make sense to either buy cheapo calls and/or puts to define that risk, or put mental stops on the trade.'
NOTE: Please keep in mind that TradeKing does not specifically endorse any of the securities or trading strategies mentioned. Depending on your risk-reward profile, this trade may or may not be suitable for your portfolio.
