Below is a daily chart of Abbott Laboratories (ABT), $44.74.
Trade: Under $44.59, we recommend buying 10 Apr $66.5 puts (30 DTE) for mid-point (currently $2.21 x 2.25/share, paying no more than $.24/share time value). Note: earning 4/18.
Technical Setup: Breakdown from Head and Shoulders daily and extended weekly.
Option Strategy: Long Puts. Put buyer pays a premium for the right to sell the underlying asset (stock) at a specified price (strike) for a specified period of time (expiry). Long puts are used to capitalize on downside market movements with less cost (leverage) and to limit risk (to debit paid). One (1) contract represents the right to buy 100 Shares. Potential Gain is Strike Price – Premium paid (i.e., break-even point). Max Loss is Premium paid.
Stop Loss: $45.86.
Below is daily chart of Altria Group, Inc. (MO), $75.34.
Trade #1: We recommend shorting 1,000 shares of stock under $75.15.
Trade #2: We recommend selling 10 Apr $77/79 bear call spread ((30 Days to Expiration (DTE)) for around current mid-point of $.37/share.
Technical Setup: Possible Double Top and breakdown daily and Climactic Sell Setup weekly chart.
Option Strategy: Bear Call Credit Spread (BCS). Defined risk strategy where you make maximum profit (net credit received) if the stock closes below the short call strike at expiration. We sell call strike price above resistance where the pattern suggests that the stock will not close above at expiry, and simultaneously purchase higher strike call than the one sold as a hedge and to reduce margin.
The return on investment (ROI) is the credit received divided by the maximum loss (i.e., width of strike prices less premium received). The break-even is the short strike price plus credit received (i.e., also your cost basis if assigned the stock).
Considered a mildly bearish strategy since we are not buying puts (or shorting stock) and just calling a short-term top in the pattern. Trade has positive theta (meaning you make money on time decay) making it a high probability trade since we time entry with the technical pattern.
Max Gain on Trade 2: Credit received. Cost basis if assigned is $77.37 (2.6% Cushion).
Stop Loss: $76.62.
Below is a daily chart of Freeport-McMoRan Inc. (FCX), $12.91.
Trade: Over $13.16 (the entire consolidation area), we recommend selling 10 Apr $12/10 bull put spread for the mid-point (currently $.23/share).
Technical Setup: Breakout of daily consolidation and Minor Support on weekly chart.
Bull Put Credit Spread (BPS). Defined risk strategy where you make maximum profit (net credit received) if the stock closes above the short put strike at expiration. We sell put strike price below support where the pattern suggests that the stock will not close under at expiry, and simultaneously purchase lower strike put than the one sold as a hedge and to reduce margin.
The return on investment (ROI) is the credit received divided by the maximum loss (i.e., width of strike prices less premium received). The break-even is the higher strike price less credit received (i.e., also your cost basis if assigned the stock).
Considered a mildly bullish strategy since we are not buying calls or stock and just calling a short-term bottom in the pattern. Trade has positive theta (meaning you make money on time decay) making it a high probability trade since we time entry with the technical pattern.
Stop Loss: $12.08.
ADI – Sold 10 Apr $85/90 bear call spread for $.60/share or better on bounce (closing mid-point $.47/share). Stop Loss: $84.42. NOTE: Traders can also short 1,000 shares as Trade#2 if like under $81.65 as a swing trade.
Adjustments and Comments on Open Advisory Letter Trades
BA – Closed both Trade #1 and #2 for a total of $1,280 gain, and was left with a “free” long Apr $210 call since there was no premium left, try to sell at $.25/share.
KBH – Purchased 10 Jul $15 calls (136 DTE) and sold the Apr 19 calls (45 DTE) for a net debit of $2.95/share. Move stop loss break even. Note: Holding over earnings (3/23) is higher risk.
CSX – Sold 10 Apr $50/55 bear call spread for $.88/share. Close half at $.38/share for over 50% of Max Profit. Close back half at $.20/share for nice gain back half for total average gain of $590.
CSX – Trade #1: Shorted 1,000 shares of stock at $47.39. Met Target of $45.50 – 46.00, for total average gain of $1,640. Trade #2: Bought 10 Apr $50/46 bear put spread for $2.18/share. Closed half at $2.90/share, move stop break even. Note: Close before 4/10 earnings.
WFT – Sold 10 Apr $6 naked puts spread for $.19/share. Stabilizing on daily chart, no changes. Stop Loss: None for now since bullish long term.
OIH – Sold 10 Apr $29/27 bull put spread for $.24/share. Didn’t get as much net credit as desired so bid $.10/share to close. Stop Loss: $29.28.
WFM – Trade #1: Sold 10 Apr $28 naked puts for $.45/share. Mid-point to close is $.26 so move stop loss break even. Trade #2: Sold 10 Apr $29/27 bull put spread for $.58/share. Mid-point to close is $.39 so move stop loss break even.
VLO – Sold 10 Apr $65/60 bull put spread for $.44/share. Stop Loss: $65.28.
TTWO – Sold 10 Apr $60/65 bear call spread for $.72/share. Mid-point to close is $.48/share, move stop loss break even.
AMZN – Sold 10 Apr $825/815 bull put spread for $1.10/share. Unfortunately got caught in this bullish trade before market selloff. Mid-point to close is $1.63/share so not catastrophic in light of huge drop. Try to close break even on bounce with market uncertainty and maintain stop loss under $839.
KSS – Trade #1: Sold 10 Apr $41.5/45 bear call spread for $.42/share. Covered half at $.21/share, move stop loss break even. Trade #2 – Shorted 1,000 shares of stock at $38.19. Covered half at $37.19, move stop loss break even.
SPY – We recommend selling 10 Apr 240/245 bear call spread for $.65/share. Stop Loss: $240.22. No fill but still valid trade if filled on bounce.
WYNN – We are monitor for potential breakout on the weekly and monthly charts.
ADI – Sold 10 Apr $85/90 bear call spread for $.60/share or better on bounce (closing mid-point $.47/share). Stop Loss: $84.42. NOTE: Traders can also short 1,000 shares as Trade#2 if like under $81.65 as a swing trade.
CRM – Sold 10 Apr $85/90 bear call spread for $.49/share. Stop Loss: $84.82.
BBY – Sold 10 Apr $47/50 bear call spread for $.29/share. Stop Loss: $46.52.
COST – Sold 10 Apr $172.5/177.5 bear call spread for $.66/share. Stop Loss: $170.32.
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra
Managing Director and Pristine Founder
Dan Gibby
Chief Options Strategist
Follow Greg on Twitter and StockTwits to get real-time updates:
Twitter: @GregCapra
Stocktwits: Greg_Capra
