In today’s Trading Newsletter, entitled Free Money for the Taking, What’s the Risk?, we discussed a Free Money trade in TAP. We explained that to us, this means the “reward-risk” of the trade is so compelling that it becomes a “no brainer” to place it. We will review what we will now refer to as More Free Money (MFM) trades (i.e., no-brainer setups).
Awesome Short- and Long-Term Put Selling Opportunity in WDC
We also concluded that article with this note: “WDC has a bullish igniting gap pre-market from bullish consolidation. I will be watching it at market open as a put selling candidate. I will update in Option Newsletter later to show you how I traded it, if I do. Likewise, WFM (and SFM, although that gap is too excessive) has a bearish gap down so I will be watching to sell OTM calls on if sets up and the premiums are worth the risk.”
It turned out to be a very active trading morning for us. Let me show you the trades I did in WDC and others, along with providing an additional watch list.
Below is a daily chart of WDC. You can clearly see the bullish gap from the multi-week bullish consolidation, following a Breakdown Failure (BDF) under $44. This shows great strength. My mindset at the open was to wait for a bullish intra-day setup and then sell the out-of-the-money (OTM) puts. I did exactly that shortly after the open.
Below are some Oct put quotes on WDC shortly after market open. I sold the Oct 42.5 puts because they were comfortably OTM, under major support, and the premiums were rich with manageable spreads. I sold a 10-lot at $.43/share and added at $.45/share. A definite MFM trade.
Below is a weekly chart of WDC. After the breakdown last April failed, it made higher highs and higher lows, holding the prior major support area. This bullish chart supports longer term trades (including selling longer dated OTM puts, bullish diagonals, etc.).
I am not going to show you a bunch of charts since there are too many to show; however, I’ll mention the symbol, pattern, and my thought process of a few of them.
Regarding the bear gaps in SFM and WFM, I preferred the reward-risk in WFM to sell a bear call Oct 32/34 spreads in. I was too busy and the credit was not juicy enough for me at the time, so I passed. But WFM looks lower on all time frames.
Bullish Breakout in Airlines Sector
I noticed many bullish gaps in airlines today. Many had bullish breakouts from consolidation: AAL, DAL, ALK, LUV, JBLU, etc. I sold OTM puts on a few of these. Definite MFM trades.
Other Bullish Candidates to Sell Puts On
CMG – Bullish gap from stabilized daily and weekly charts after betting annihilated on monthly chart. Would have sold OTM put spread but too spready.
TAP – The subject of today’s Trading Newsletter, because of the wide spreads, I am trying to sell Oct puts as “low offer” on various strikes.
LN – Bullish gap yesterday and continuation on recent IPO, because of the wide spreads, I am trying to sell Oct 37.5 (and below) puts at $1.10 “low offer.”
DLTR, DG, and many health care stocks, still no tradable bottom, but watching.
THC – Poised with bullish hourly breakout today, I’m trying to sell as low offer OTM Oct puts at various strikes. A bullish 1/3 pull back on the hourly chart will be a low risk entry. I did get filled on a Oct 22/17 put spread for $.45/share. A definite MFM trade.
HCA, CYH, MOH, – today was the day, but I missed them, will watch on pull back.
X – Oversold and on minor support weekly, over $19.75 I will sell Oct OTM puts, which are “juicy.”
NAT – Acting well, looking to add to my short Oct 10/8 put spread.
Now go out there and look for some More Free Money (smile).
NOTE: With this ongoing trading range in the broader markets and mixed internals, we will also start building a list of bear call spread candidates — stay tuned!
Happy trading! If you have any questions or comments, please e-mail Dan Gibby at Dan@gregcapra.com
