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Taking Advantage of an Appealing Option: The Ubiquiti Networks' Buy-Write Idea


After an earnings report disappointment, writing call options against a beaten-down stock can be an attractive trade idea.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

I have long considered writing call options against an underlying stock position -- or buy-writes -- following earnings disappointments to be some of the most attractive trades.

One such trade jumping out at me now is writing call options on Ubiquiti Networks (NASDAQ:UBNT). The stock was pounded on Friday (May 9) after Ubiquiti reported increasing inventories, even though the company hit its earnings targets and maintained its key guidance.

On the surface, at least, this appears to be a classic growth-at-a-reasonable-price story temporarily out of favor -- a classic buy-write opportunity.

One attractive trade is the June $32 at-the-money buy-write, with an annualized called return of about 110%. More aggressive traders can use higher strikes, and more conservative traders can use lower ones.

The stock is hinting at new support in the low $30s. Some analysts think that the stock drop could be a catalyst for acquisition talk. While I wouldn't hang my hat on that, traders doing a buy-write might want to stay long a few extra shares.
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Author holds positions in UBNT

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