I've had some traders ask about a potential option trade on the SKF as it seems we are near a snapback rally of some sort and if thats the case then this SKF will collapse. The tricky thing with these leveraged beasts is timing, timing, timing. One catalyst that might get the banks jumping this week is the mark to market accounting regulations. So if you think we are in for a major bounce in the banks in the next two weeks then some puts on SKF could really work out well. I'm not saying it will happen but the odds are good that we see some sort of recovery rally so here is the play.
Implied volatility on SKF is north of 190% so I would prefer using a spread strategy to hedge some volatility risk because once the SKF sells off hard then the implied volatility will get crushed too.
Buy the 200/150 March put spread.
In this trade you are buying the 200 put and selling the 150 put for a net debit of around $10.
Max loss is that original $10 if SKF closes above 200 by March expiration.
Your breakeven point at expiration is at 190
Max gain is a possible $40 if SKF gets under 150 by expiration.
Again this is a somewhat risky play since SKF is insane. But if you think we are near a short term bounce in the banks then this is a good way to play the options imo.