Today is an unusual day. I have two trades I am looking at — both discussed by Invest Answers this week — and I actually like both stocks. But the trade structures are completely different. I do not normally have this opportunity to show you two setups side by side on the same day, so I am excited to walk you through my process.
This is not financial advice. I am simply showing you how I make decisions — and more importantly, how I say no even when I like the stock.
Trade #1: SATS — The MSL That Works
SATS is in a trading range. We just tested the high end with a positive-two mean reversion, and we have come back down to around $110. Could we get to $105 again? Sure. But I am setting a trade two years out, so I am not overly concerned about the short-term move. I am more concerned about my trade structure.
Here is what I am looking at: a December 2027 modified synthetic long.
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Buy the December 2027 $90 call — this is the option with roughly 50/50 intrinsic to extrinsic
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Sell the December 2027 $100 put
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Buy the December 2027 $80 put (hedge)
That put spread is $20 wide. I take the credit from it and apply it toward the $90 call.
The SATS Math
- Debit: $33
- Breakeven: Long call strike + debit = $90 + $33 = $123
- Risk: Debit ($33) + margin on the $20 put spread ($20) = $53
The stock is trading at $111. My total risk is $53 — that is less than half the stock price. I like this trade. I have time, I have a clean setup, and the risk-to-reward works.
Trade #2: CRCL — The MSL That Doesn't Work
CRCL is also a stock I like. The chart is starting to show mean reversion close enough to where I am considering an entry. We had a ripping run, and this pullback is actually 50% of that move — so I am interested.
Let me price a modified synthetic long and see what it looks like.
I am going out to December 2028 for this one. The call that gives me 50/50 intrinsic to extrinsic is the $70 call. I am selling the $90 put — a little out of the money because we have been heading down — and buying the $70 put as a hedge. That is a $20-wide spread.
- Debit: $50
- Breakeven: Long call strike + debit = $70 + $50 = $120
- Risk: Debit ($50) + margin on the $20 put spread ($20) = $70
The stock is only $99. My risk is $70 on a $99 stock. **This is a terrible modified synthetic long setup.** It does not work.
The Comparison
SATS vs. CRCL
- Stock Price: $111 v $99
- Debit: $33 v $50
- Breakeven: $123 v $120
- Total Risk: $53 v $70
- Risk as % of Stock: ~48% v ~71%
SATS: less than half the risk. I like it.
CRCL: more than two-thirds the risk. I hate it.
One size does not fit all. The same strategy — a modified synthetic long — can be a fantastic trade on one stock and a terrible trade on another. The numbers have to work.
What I Would Do Instead on CRCL
If I wanted exposure to CRCL, I would skip the MSL entirely and go with a synthetic long:
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Sell the December 2028 $100 put
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Buy the December 2028 $100 call
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Debit: $9
The risk on a synthetic long is the short put strike plus the debit — so $109. That is the same risk as owning the stock outright. The only difference is my cash outlay up front is just $9 instead of $99.
I might only scale in with a portion of my contracts at first to dollar-cost average, rather than doing all entries at once, but the point is: when the MSL structure does not make sense, I do not force it. I find a different structure — or I just own stock on margin. At a $50 debit on the MSL, risk of $70 versus $9 on the synthetic long, I am better off with the SL and managing the risk accordingly.
The Takeaway
This Market Minute was about saying yes AND saying no. Both of these stocks were discussed as opportunities. Both setups had merit. But the trade structure only worked on one of them.
If you have been watching these Market Minutes — learning about MSLs in MM15 and MM16, learning my daily process in MM17 — this is where it all comes together. Knowing the strategy is step one. Knowing when the strategy does not fit is what separates good traders from great ones.
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