bear flag on AIG and subdued volatility: put debit spread
AIG currently is trading with an IV30 of 19.6, making its IV Rank 21.8. This low rank indicates that the options will be cheap, and encourages debit spreads, regardless of being bullish or bearish. These spreads will profit when volatility mean-reverts to higher levels.
Because of this well-developed bear flag, we are expecting a continuation of the prior downtrend, thus reversing the immediate uptrend characterized by higher highs and higher lows. To profit off of this, we are doing a put debit vertical by longing the July 26th 54 puts and writing the 53s, for a max potential profit of 41 and capped potential loss of 59, per contract. This is particularly cheap because they expire prior to the expected earnings announcement on August 1st, '19. The break even price is 53.41 because it is being done for a debit of .58. There is max profit below the short strike K = 53.
Because of this well-developed bear flag, we are expecting a continuation of the prior downtrend, thus reversing the immediate uptrend characterized by higher highs and higher lows. To profit off of this, we are doing a put debit vertical by longing the July 26th 54 puts and writing the 53s, for a max potential profit of 41 and capped potential loss of 59, per contract. This is particularly cheap because they expire prior to the expected earnings announcement on August 1st, '19. The break even price is 53.41 because it is being done for a debit of .58. There is max profit below the short strike K = 53.