Below is a daily/weekly/monthly chart of NVIDIA Corporation (NVDA), $103.07.
Trade: Under $102.55, we recommend shorting 10 May 117/130 bear call spread (14 DTE) for mid-point (currently, $.76/share). Note: Earnings 5/9/17 so higher risk, but this is intended to be an earnings trade and selling OTM high implied volatility.
Technical Setup: Breakdown after Breakout Failure on daily, range bound weekly, and extended monthly with bearish Topping Tails monthly 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: Credit received. Cost basis if assigned is lower strike plus Credit.
Stop Loss: $110.42.
Adjustments and Comments on Open Advisory Letter Trades (Note: Our Trade Updates are timely posted in a separate Report in the Member’s Area. Please see that document for a current reflection on all Open and Closed Trades since the spreadsheet updates immediately and will always be more current than this e-mail update. Thank you.
But here are the current Open Trades and Adjustments.
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.
LRCX – Shorted 10 May 150/155 bear call spread for $.85/share. Stop Loss: None for now; however, as an Adjusting Strategies since it is remaining too strong, over $151( 5-Min. high), we recommend shorting 10 May 150/145 bull put spread at mid-point (closed at $1.37/share) to convert into an Iron Fly and generate additional time decay.
PM – Under $109.75, we recommend selling 10 Jun 115/120 bear call spread (44 DTE) for a limit of $.45/share. Cancel trade now.
INTU – Shorted 10 May $120/115 bull put spread for $.27/share. Mid-point to close is $.11/share, bid $.05/share to close and move stop loss to $124.88.
AXP – Sold 10 May 81.5/84.5 bear call spread and sold 10 May 76.5/73.5 bull put spread (Iron Condor) for $.48/share. Stop Loss: None.
XBI – Shorted 10 May 74/77 bear call spread for $.38/share. Mid-point to close is $.11/share, bid $.05/share to close and move stop loss to $71.42.
EIX – Shorted 1000 shares of stock at $78.74. Sold 10 May 77.5 puts for .40/share to convert to a covered put and improve basis to $79.14/share. Target: $76-77. Stop Loss: $81.22.
IBM – Bought 10 May $165/157.5 bear put spread for $6.13/share. With large gap down beyond ITM put, let’s sell after the open for $7,350 which is close to our Max Gain of $1,370.
FDN – Under $93.15, we recommend shorting 1000 shares of stock. Stop Loss: $94.12, and then trail over a prior day’s high for a swing trade.
QQQ – Under $136.50, we recommend buying 10 May $138.5/135 bear put spread for mid-point (closed at $1.40/share). Stop Loss: $137.82.
SPY – Over $239.40, we recommend buying 10 May 235/241 bull call spread (14 DTE) for mid-point (closed at $3.86/share). Stop Loss: $237.58.
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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