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Orlando, FL
Experience: Advanced
Platform: Jigsaw, DAS Trader Pro
Trading: ZN, ZB, ES, Stocks, Options
Posts: 5 since Sep 2021
Thanks Given: 6
Thanks Received: 18
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That’s going to depend a lot on how you see things playing out. It’s reasonable (based on looking at past splits on average) to think the stock may pop another 5-10, even 15% between now and then, as this would be typical based on historical comparisons. But current conditions are penalizing long ideas, so this thesis carries less weight than it would have in 2021. A split theoretically makes a stock more affordable and should stoke demand, but the mood is very sour, particularly in Tech. This makes for lower odds of the long trade working.
Then there is the historical tendency for splits to be a “sell the news” trade, where everyone has already bought ahead of the split, so they’re running for the exit on the day it starts trading lower.
To run the scenario where it could pop, I’d put on an OTM (10-15% or so) Bull Call spread if I could get a very high payout for my cost. In other words, 0.50 debit to put it on and a 5.00 payout if its right. If the market does rally, that is a reasonable target band for a trade like this.
On the other hand, you could wait for the split to occur, then put on a Bear Put spread with similar payoff characterisitics.
The thing about both trades is that they may work. The real odds of those moves might be 30% on either side (due to catalyst, a split) but your payoff is much better than 3:1. When it comes down to it, this is not much different than most other trading strategies, you have to have favorable payoffs and/or win rates, and play lots of similar events to make it work.
But these are relatively simple strategies that just barely scratch the surface of how tailored you can get with options. Hope this helps.
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