EWY Call Ratio Spread: Trading South Korean Memory Stocks

What's up everyone and welcome back to option trades today

I'm filling in for elder bat here for a trade idea, which I think is pretty interesting now

The focus has been all about the chip names and specifically this week the memory stocks

I'm talking about micron trading at 660 and change here having 20 30 40 dollar

Moves every single day. It's been absolutely crazy. You know, you've got sandisk in there that's gone from

$2030 to $1400 just an incredible move

STX another one all these charts have been up and to the right Western Digital as well

Looped into that bunch if you're looking for a interesting way to kind of play the memory game

But in something that's a little bit less talked about you can look at some of the South Korean stocks

So Samsung ask SK hynix, which is both our memory

Related stocks Samsung hitting 1 trillion dollar market cap just in the past couple days here the

ETF for South Korea is

EWY it's not super liquid but liquid enough to trade certainly right now with the craziness that's going on in the

Space it's definitely something that we can put a trade on but the stock has had it or the ETF has had a great run

To the upside and if you're kind of bullish, but don't want to have the same sort of downside risk

I think an interesting trade here is a call ratio spread that plays into the the call skew that we have to the upside

here, so

I'm looking at EWI

I'm going out to June

And just to show you a little bit of this call skew the the ETF trades at 180 here

We can go to let's say the 200 call

which is 20 points out of the money and then go to the

60 strike put which is 20 points out of the money and you can see from a Delta perspective

23 Delta versus 32 Delta on the upside

From a premium value six dollars versus five dollars on the downside just a huge skew to the upside

So I think we kind of play into that skew in June with a call ratio spread

I'm looking at doing around the 40 Delta for the long option puts you at the 190 strike

I'm gonna sell two of the 205 which is around a 20 ish Delta 25 ish Delta here

So this nets out a small amount of short Delta on the entry about 10 to 11 short Deltas

You can see you have about $10 a day in positive theta decay here marked at about a 70 cent credit

Just to give you an idea of what this risk profile looks like when we go to the analysis mode here

I just select the position that we have on currently on the trade page here

You can see this trade has no risk to the downside

So if this if the ETI for the market were to go down to any degree you'd keep that

You know credit that you get on entry here, but it gives you a wide range to hit on the upside here

This call ratio spread starts to gain added value when you get to around 190

This is at expiration keep in mind the the risk profile that we're looking at here is at expiration as you get up to

200 205 which is another 10 to 15 20 percent move to the upside here

You have up to about a $1,500 added profit potential

Which is the difference between the 190 long option the 190 call and the 205 short call that you have here

Where do you have risk? Well, you have risk at about

220 here which puts you at about a 30% upside move

We'll just call it 25 30 percent move to the upside over the next 40 days

I think it's an interesting risk reward only use about 900 bucks here in a portfolio margin account

So I might use a little bit more in a regular standard margin account, but I think it's an interesting

Capital efficient way to play for some upside here, but maybe not the level that we've seen in the last couple weeks here

So I'm gonna go ahead and try and get this filled here

I'm gonna start above the mid price and we'll just work our way down from there

I'm thinking that we'll have to adjust this a bit here

Just given that the the bid-ask spreads are about 30 or 40 cents wide on each of these options

Again not the most liquid underlying but I think an interesting play here if you're looking to get into something that's

Hasn't been as crazy as your microns or sandisk

Moves here and is a little bit different than stuff that you're trading in US markets here

So continuing to work this order down. I'm probably gonna get filled somewhere around 50 cents is what I would guess

But I'm gonna just work this down by nickels here until we get filled. We'll try the 55 cents here

See if we get filled here. No fill there. We're gonna move this to 50

And I think we'll get filled there. No fill there. We'll try 45

Continuing to work our way down here. This is really a

Trade that benefits from a slow choppy up move over the next 40 some odd days

Towards 200 that would be the meat of your ratio spread here. You have no risk to the downside

We got filled there at 45 cents, so we'll see if this one works out over the next couple weeks here