Below is a daily/weekly chart of McDonald’s Corporation (MCD), $141.20.
Trade: Under $140.90, we recommend shorting 10 May 144/148 bear call spread (23 DTE) for mid-point (currently $.68/share).
Technical Setup: Extended all time frames with possible Wide Range Bar “ending the move” short-term.
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: $142.32.
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.
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 5/2/17 so holding is higher risk.
GNC – Shorted 10 Jun 7.5/5 bull put spread for $.35/share. Stop Loss: 7.48. Had deep retracement so try to close at $.30/share.
JBL – Shorted 10 Jun $27/23 bull put spread for $.42/share. Mid-point to close is $.23/share so move stop loss break even and bid $.10/share to close.
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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