Below is a daily chart of UnitedHealth Group Incorporated (UNH), $189.19.
Trade: Over $189.41, consider one of the following trades: (a) shorting Jul (7/28) $187.5/182.5 bull put spread (8 DTE) for mid-point (closed at $.67/share); or (b) buying Aug (8/18) $180/195 bull call spread (29 DTE) at mid-point (currently $9.39/share). NOTE: Trade B is more aggressive with a directional bias.
Technical Setup: Breakout daily in strong uptrend weekly/monthly following failed breakdown post-earnings.
Option Strategy: Bull Put Credit Spread (BPS). Defined risk strategy where you make maximum profit (net credit received) if the stock closes above the short put strike at expiration. We sell put strike price below support where the pattern suggests that the stock will not close under at expiry, and simultaneously purchase lower strike put 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 higher strike price less credit received (i.e., also your cost basis if assigned the stock).
Considered a mildly bullish strategy since we are not buying calls or stock and just calling a short-term bottom 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.
Bull Call Spread (BCS). Defined risk strategy where you make maximum profit if the stock closes above the short call strike at expiration. We buy bullish calls and then sell OTM calls to reduce the cost of the long call and generate time decay income.
The return on investment (ROI) is the Gain divided by the Debit, which is the maximum loss. The break-even is the lower strike price plus debit paid. Considered a mildly bullish strategy since we are not buying outright calls or buying stock, and willing to cap our gains in exchange for gain from time decay.
Max Gain: Credit received. Cost basis if assigned is higher strike minus Credit.
Stop Loss: $186.48.
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NOTE: Please see Master Trader Guidelines for Trading the Open and Gaps in Member’s Area for rules on trade entry, gaps, etc.
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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NOTE: Master Trader will show opening and closing prices of all stock and option trades. We do not recommend proper share size for your particular trading style, risk tolerance, or account balance. We urge you to calculate your own share size based on your individualized risk parameters, Trading Plan, and familiarity with the proposed trade strategy and risk.
NOTE: Master Trader and its representatives might have existing positions in these and other trade recommendations before or after suggested herein. Additionally, we often manage them differently for internal purposes based on different risk parameters than noted herein.
