Below is a daily/weekly chart of Lam Research Corporation (LRCX), $146.52.
Trade: We recommend shorting 10 May 150/155 bear call spread (21 DTE) for a limit of $.85/share (caution, less liquid so don’t chase).
Technical Setup: Extended all time frames with Climactic Sell Setup daily and monthly charts.
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: None for now, we will use Adjusting Strategies if necessary; however, ideally, it should not trade over today’s high.
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. Not acting right so closed at $.25/share for small gain with overbought market.
MCD – Shorted 10 May 144/148 bear call spread for $.53/share. Stopped over 5-Min. high at $.85/share for $320 loss. However, we think our stop was too tight and got shook out. We will do chart lesson on it in a future issue. If still in it, feel free to hold since looks great now on the hourly chart after Breakout Failure, stop highs.
DIA – Sold 10 May $208/212 bear call spread for $.73/share, stopped at $1.45/share. Sold 10 May $203 naked puts for $.79/share to generate additional time decay since the gap/pattern turned bullish. Stop on short put is $203.58.
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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