Investment Report

INVESTMENTREPORT

M A T T H E W C O O P E R

2 0 1 7 I N V E S T M E N T R E P O R T • M A T T H E W C O O P E R

02030405

Introduction

Strategy • Objective • Justification

Stock

GameStop (GME)

Stock

S&P 500 VIX (VXX)

Stock

Twitter (TWTR)

CONTENTSI N V E S T M E N T R E P O R T

INTRODUCTIONAs a retail investor and subscriber to the efficient markethypothesis, I base my trades on contrarian thinking, meanreversion and mathematical reasoning.

By utilizing derivative products, I am able to place highprobability trades. My trading strategy depends on therelative ranking of implied volatility in equity options.Generally, implied volatility overstates stock movementmeaning that in the long term, selling option premium inhigh volatility environments will be a profitableendeavour.

Research has determined selling options that have 45days until expiration is the best choice. This is becausethe extrinsic value of the options is highest relative to therisk we take. Although theta decay is richest a few daysbefore expiration, the increased delta is not worth theadditional risk.

Fortunately, the options expiring in the February cyclehave 42 days until expiration at the time of this report. Iwanted to include three different trades where I couldutilize different strategies in non- correlated underlyings.I believe that the largest risk an investor can take istrading illiquid products and too many correlatedunderlyings. Currently, my market outlook is neutral toslightly bearish. With that in mind, I believe that there area few good buying opportunities, one of which I haveincluded in this report.

I look to remove trades when 50% of maximum profit isrealized for two reasons. The first being that I want toredeploy the capital in other underlyings. The secondreason is because if I continue to hold the position, thedelta risk will become too large for my portfolio.

P A G E 0 2

GAMESTOP (GME)B I A S : N E U T R A L

Make a delta neutral trade that will profit fromsideways movement or volatility contraction.

O B J E C T I V E

Implied volatility is expensive in GameSpot meaningthat the options are trading higher than they usuallyhave in the past year. To taken advantage of this, Iam looking to place a delta neutral trade that willprofit from either volatility contraction or sidewaysstock movement. I have decided to sell the 22 putsand 27 calls expiring in February. I am looking totake this position off at $0.55, when the trade hasrealized 50% of maximum profit. This will reducedelta risk and allow me to allocate the funds forother trades.

S U M M A R Y

1 8 0 D A Y C H A R T

Current Price: $24.52

52 Week Range: $20.10 - 33.72

Options Expirations: 42 days until expiration

Implied Volatility: 49.58%

Implied Volatility Rank: 77%

Spread: Sell (one) 27 call and (one) 22 put expiring

in the February monthly cycle

Trade Price: $1.09 credit

Max Profit: $109

Max Loss: Unlimited

Buying power reduction: $245.20

Break-even prices: $20.91 / $28.09

Probability of profit: 65% (ThinkorSwim)

S T O C K S T A T I S T I C S

P A G E 0 3

S&P 500 VIX (VXX)B I A S : B U L L I S H

Get short delta in the S&P 500 by buying a modifiedbutterfly call spread in VXX.

O B J E C T I V E

VXX is an exchange-traded note that resembles theprice of VIX. Volatility is inversely correlated to theS&P 500 meaning that a drop in equities will resultin an uptick in this product. Due to markets being atall time highs and volatility near its lows, I amlooking to enter a short position using a modifiedbutterfly call spread in VXX. This trade will be donefor a $0.07 credit meaning that there is nodownside risk. If markets continue to rally, I willmake a slight profit in this trade as all options willexpire worthless. My maximum loss is $193 percontact which will come from the stock exceeding$26 on expiration. I will look to take this trade offwhen I am able to sell it for about $100. Thisrepresents 50% of my maximum profit.

S U M M A R Y

1 8 0 D A Y C H A R T


52 Week Range: $21.63 - $123.40

Options days until expiration: 42 days until

expiration



Spread: Buy (one) 20 call, sell (two) 22 calls and buy

(one) 26 call all with same expiration


Max Profit: $207

Max Loss: $193


Break-even prices: NA / $24.07



P A G E 0 4

TWITTER (TWTR) B I A S : B U L L I S H

Get long delta in Twitter with no downside risk by using a call ratio spread.

O B J E C T I V E

Due to Twitter trading near all-time lows, I amlooking to place a contrarian trade where I get longdelta. The current implied volatility in Twitter is22% meaning that options are trading relativelycheap. As a result, I am looking to buy a call ratiospread that has; no downside risk, high profitpotential and a high breakeven point. The spreadthat will best meet all of my criteria is buying a 17call and selling two 19 calls in the same expirationcycle. Currently, I am able to make this trade for$0.03 which means that I have no downside risk, abreakeven of $21.03 and a maximum profitpotential of $203 per contract. I want to removethis position when it is trading for $1.00 as this willearn me 50% of max profit.

S U M M A R Y

1 8 0 D A Y C H A R T


52 Week Range: $13.73 - $25.25

Options days until expiration: 42 days until

expiration



Spread: Buy (one) 17 call and sell (two) 19 calls with

same expiration


Max Profit: $203

Max Loss: Unlimited


Break-even prices: N/A / $21.03



P A G E 0 5

Investment Report

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