We still believe the markets are poised to head lower despite the bulls being relentless and the charts not cracking yet. Perhaps this will happen next week after today which is the end of the quarter (maybe money managers don’t want to sell yet for window dressing), so we want to be patient and wait for our proper setups before getting aggressive.
We are watching for an entry on SPY short, plus here is another short option trade watch for later:
Below is daily chart of Tesla, Inc. (TSLA), $277.38.
Trade (WATCH ONLY NOW): We are watching to sell 10 Apr $300/310 bear call spread ((21 Days to Expiration (DTE)) later this afternoon based on it’s close (current mid-point $.94/share).
Technical Setup: Major Resistance daily time frame and break down hourly if triggers under low.
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: $291.22.
Adjustments and Comments on Open Advisory Letter Trades
These are all opens now, but MO, MU, CF and AMAT are only updated ones:
CF – Sold 10 Apr $28/25 bull put spread for $.33/share. Move stop loss $29.25.
ABT – Bought 10 Apr $46.5 puts for $2.20/share (under 5-Min. low of $44.51). Move stop loss $45.22. Note: Earnings 4/18.
CF – Sold 10 Apr $28/25 bull put spread for $.33/share. Stopped break even.
VLO – Sold 10 Apr $65/60 bull put spread for $.44/share. Maintain stop loss $65.28.
MU – Sold 10 Apr $30/33 bear call spread for $.40/share. Stopped break even.
WYNN – We are monitor for potential breakout on the weekly and monthly charts.
EWP -We recommend selling 10 May $29 naked puts at a limit of $.75/share. Note: we would not typically trade this illiquid stock but our strategy is acceptable based on our outlook. Stop Loss: None, we would love to own EWP at a Cost Basis of $28.25 if assigned.
JBL- Bought 10 Apr $28 calls for $1.40/share. Place limit order to sell calls at $1.80/share to see if we can get filled on a breakout. Move stop loss $28.38.
AMAT – Sold 10 Apr $40/42 bear call spread for $.37/share. Mid-point to close is $.20/share. Bid $.15/share to close and move stop loss $39.22.
FCX – Sold 10 Apr $12 naked puts for $.15/share. Stop Loss: $12.44.
MO – Bought 10 Apr $73/71.5 bear put spread for $.70/share. Stop Loss: $73.62.
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
Follow Greg on Twitter and StockTwits to get real-time updates:
Twitter: @GregCapra
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