Selling Put Ratio Spreads In BridgeBio Pharma, Inc. (BBIO)
Very high probability of profit setup
Implied volatility in BridgeBio Pharma, Inc. (BBIO) has skyrocketed above 220% in the August cycle, bringing opportunity for the following reasons. This means the stock’s 52-week IV rank stands at 97, which is practically at its highest point over the past 12 months. Furthermore, as we see below, BridgeBio Pharma’s 52-week historical volatility (HV) stands at a mere 61%. When the spread between IV & HV is significant (as we have now), this brings plenty of opportunity for option sellers due to the overpriced nature of the stock’s put & call options.
Although one can go further out of the money on the call side with respect to the selling of these ratio spreads, this strategy involves unlimited risk so we are going to go with put ratios as we can get our cost basis under $10 here. (BBIO’s current share price is $18.10)
The company is next expected to announce its earnings numbers at the beginning of August and although the steepness of BBIO’s bullish trend over the past 6+ months is slightly above average, BBIO continues to make healthy gains and has significant support down at the $10 level.
Trade Fill: Selling 2x1 put ratio spread ($15 & $12.5 strikes in regular August 2023 cycle) for $0.75 per ratio. This gives us a breakeven of $9.25 on the position and a probability of profit well over 80%.
We will respond accordingly if price goes against us on the upcoming significant expected move.
‘Remember To Adhere To Rules Regarding Trade Size In Earlier Commentary’
Updated Portfolio