Below is a daily/weekly chart of iShares Russell 2000 (IWM), $134.78.
Trade: Under 30-Min. low (currently under $134.51), we recommend selling 10 May 75/78 bear call spread (31 DTE) for mid-point (currently $.86/share).
Technical Setup: Possible Head & Shoulders Breakdown daily, early entry with gap down into +WRB, will be weak if triggers
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 BCS: Credit received. Cost basis if assigned is lower strike plus Credit.
Stop Loss: $138.22.
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 Adjustments.
FB – Sold 10 Apr $143/146 bear call spread for $.34/share. Stopped $.31 for $30 gain.
HD –Sold 5 May (5/5 weekly) 150/155 bear call spread for $.68/share and sold other half lot at $.55/share. Stop Loss: $150.22.
BYD – Bought 10 Bull Call Diagonal as follows: buy Jun $20 calls and selling May $23 calls for $2.05/share. Note: We typically like to leg into BCD but with earnings 4/25/17 and mixed market internals, we want to sell the OTM call immediately to generate some time decay and lower cost basis of long call. Move stop loss $21.18. Note: earnings 4/25/17 so holding is higher risk.
CME – Sold 10 Apr $119/123 bear call spread at $.75/share. Close around $.18/share mid-point for $570 gain.
QQQ –Sold10 May 134/138 bear call spread for $.71/share. Stop Loss: $133.52.
XLV – Under $73.78, we recommend two trades depending on your trading preference: (a) shorting 1,000 shares of XLV (very bearish strategy); and/or (b) selling 10 May 75/78 bear call spread (32 DTE) for mid-point (closed at $.62/share) (mildly bearish strategy). Stop Loss: $74.72.
TZA – Over $19.57, we recommend two trades depending on your trading preference: (a) buying 1,000 shares of TZA (very bullish strategy); and/or (b) selling 10 May 18/15 bull put spread (32 DTE) for mid-point (closed at $.60/share) (mildly bullish strategy). Stop Loss: $17.98.
DG – Under $68.00, we recommend selling 10 May 72.5/77.5 bear call spread (32 DTE) for mid-point (closed at $.62/share). Stop Loss: $71.22.
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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