Options Trading: How to Profit From Ciena's Bullish Setup

Trading options with high-dollar stocks like Ciena (CIEN)  is tough if you are looking for a high-probability trade. 

What is that? Basically if you look for an option that is right at the money or nearby it, you will end up paying a higher amount of time decay for each option (call or put). Why? Well, the higher price on the stock the more likely the moves will be larger.  

A 10% move on a $200 stock is about $20, while the same percent move on a $20 stock is only $2. I believe higher dollar options offer less leverage than lower dollar options but with more protection from sideways movements.  

Simply put, if you should compare the premium paid on an option with the price of a stock.  Anything you buy that is reasonably priced with appropriate implied volatility may be worth that purchase.

Back to Ciena, which is a $270 stock and has pricey options. 

One reason for this, other than the obvious high price, is a lower open interest. We may find options are the way to go in playing this stock for a move up or down (in this case up, as the stock chart is bullish), but market makers are just not interested in a high-dollar stock that does not trade a large amount of volume. 

The technical picture looks good for Ciena. Notice on this Chaikin Analytics version the strong price chart, positive money flow, solid relative strength and the overall bullish rating on the power gauge (bottom).  

As for an options play, I'm looking to March or April. Earnings will come on March 5, so I want something after that event. The expected move is about $57, a big move which would be about 20% the price of the stock. 

It looks like the March $300 call is the choice, it has a 44 delta which is strong enough to support the option if the stock gets volatile. The cost of one call is about $2,300 (23 x 100), so it is not cheap for a call that is 10% out of the money. 

At the time of publication, Lang had no positions in any securities mentioned.