Below is daily/weekly chart of Advanced Micro Devices, Inc. (AMD), $13.09.
Trade: We recommend selling 10 May $16/18 bear call spread ((43 Days to Expiration (DTE)) at current mid-point of $.23/share. Note: Don’t have earnings date.
Technical Setup: Bearish Pro Gap down daily, with Bearish Wide Range Bar (-WRB) engulfing bar following Breakout Failure on the weekly 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: $14.92.
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).
XBI – Sold 10 May $71/75 bear call spread for $.59/share, add another 10 contracts on a bounce at $.75/share if we get it since the hourly chart is extended. Stop Loss: $70.62.
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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