Below is a monthly and daily chart of CF Industries Holdings, Inc. (CF), $31.88.
Trade: Over $31.92, consider two trades: (a) buying Nov (11/17) $25 calls (99 DTE) and selling Aug (8/18) $32.5 calls (8 DTE) for $6.76/share (closed at $6.76/share), or (b) shorting Sep 9/15 $29/26 bull put spread (29 DTE) for a limit of $.30/share (closed at $.32/share). Note: Earnings 10/31.
Technical Setup: Bullish Wide Range Bar (+WRB) Breakout daily and weekly charts with bullish W Formation and higher low monthly.
Option Strategy: Bull Call Diagonal (BCD). Bull Call Spread except the ITM Call is longer dated to take advantage of longer Directional Bullish setup. Max Profit (estimate) is the width of Call strikes – Debit. Breakeven (estimate) is the Long Call strike price – Debit.
We recommend .70 Delta ITM Calls and short Calls (less than 30 DTE) above resistance where think will expire below at Expiry. Goal is to profit as stock rises with ITM Call and routinely sell OTM calls to earn $$ from time decay.
Similar to Covered Call except ITM Call replaces long stock. Done to reduce the risk of loss and lower cost of long call. Caps gain but increases probability of profit since lower break even and less Max Loss than long call only.
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.
Stop Loss: $27.98.
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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
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.
