Well, I see that you are also looking at Apollo , but you are standing on the other side of the spectrum here as you observe Apollo. So, explain your thesis to me here.
I'm looking at Apollo simply because private equity has rebounded a bit. Although we saw some pressure on some of these names earlier this year, they have recovered so far. Now some of these names that have recovered are beginning to show some weakness here.
Recently, Apollo stock rebounded from the $115 level , trading upwards to the $140 range, and is now beginning to decline again to the $120 range. This is where I really think there may be more downturn, particularly for asset managers who have been exiting their portfolio companies to generate returns for shareholders, as the environment has become difficult for them to do so.
This is exactly what we have seen some decline in for these managers. For Apollo, I will wait until the weekly options expire on October 30, which gives us about 6 weeks of time.
I am looking to buy a vertical put option at approximately the market price , attempting to buy the put option at 126 and sell the put options at 110 for that. The put options at 110 effectively represent the low levels we saw earlier this year.
By targeting those lower downside levels today, you can pay around $5 for that debit spread, and that will give you a risk-to-reward ratio of slightly more than two to one. This again protects you from any further downturn in the financial sector if you have exposure to that particular sector.