Below is daily chart of Facebook, Inc. (FB), $140.06.
Trade: We recommend selling 10 Apr $143/146 bear call spread (10 Days to Expiration (DTE)) at mid-point or better (currently $.34/share).
Technical Setup: Rolling over under r20ma and Support after TT/Breakout Failure.
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: Credit received. Cost basis if assigned is lower strike plus Credit.
Stop Loss: $142.52.
Adjustments and Comments on Open Advisory Letter Trades (Note: We have started posting our trade updates in a separate Report in the Member’s Area. Please see that document for a current reflection on all Open and Closed Trades which will be updated nightly). But here are the current Open Trades and Adjustments.
SPY -Bought 10 Apr $238 puts (10 DTE. .82 Delta for Directional Trade) for $3.30/share. Stop Loss: $236.42. Cover half in low $232 area.
IWM – Sold 10 Apr $139.5/143 bear call spread for $.48/share. Mid-point to close is $.18/share so move stop loss $137.02 to protect gains and bid $.05/share to close.
XBI – Sold 10 May $71/75 bear call spread for $.59/share. Move stop loss $68.52.
XLK – Sold 10 May $54/57 bear call spread at $.43/share. Mid-point to close is $.31/share, rolled over so looks good, move stop loss break even.
AMD – Sold 10 May $16/18 bear call spread for $.23/share. Note: Don’t have earnings date but we hear it is 4/20 so bid $.10/share to close and trail stop loss over prior bar’s high since rolling over here, looking good.
PIR – Sold 10 May $6 naked puts for a limit of $.25/share. Stop Loss: $6.38. Note: earnings 4/12/17 so holding is higher risk.
CMCSA – Over $38.36, we recommend buying 10 Bull Call Diagonal as follows: buy Jul $36.25 calls and selling May $38.75 calls at mid-point (currently $2.00/share). Note: We typically like to leg into BCD but with earnings 4/27/17 and mixed market internals, we want to sell the OTM call immediately to generate some time decay and lower cost basis of long call. Stop Loss: $36.68. Cancel trade, deep retracement and market weakened.
CME – Sold 10 Apr $119/123 bear call spread at $.75/share (hard to estimate because of large spreads at open). Stop Loss: $120.12.
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
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Twitter: @GregCapra
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