Below is a daily chart of both $VIX and ProShares Ultra VIX Short-Term Futures (UVXY).
Trade: Over $20, we recommend shorting 10 May (weekly 5/12) $15.5/13 bull put spread (21 DTE) for mid-point (currently $.75 share).
Technical Setup: Breakout daily from small cup and handle bullish pattern (i.e., pull back after bullish breakout), with Implied Volatility of VIX (Volatility Index) being very high, because of the weekend elections in France and possible disruption in Europe, favoring option selling.
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.
Max Gain: Credit received. Cost basis if assigned is higher strike minus Credit.
Stop Loss: $15.88.
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 which will be updated nightly). But here are the current Adjustments.
NFLX – Sold 10 May (weekly 5/5) $150/155 bear call spread under 10-Min. low for $.48/share. Closed half at $.22/share for over 50% Max Gain in one day and stopped back half $.32/share for $210 gain.
GNK – Bought 1,000 shares of stock at average cost basis of $14.12. Unfortunately stopped at $11.48 with entire weak sector for $2,640 loss.
Link to 4/20/17 Master Trader Monthly Webinar if missed
https://attendee.gotowebinar.com/rt/2476270991880592642 Thank you all for attending, hope you learned a lot!
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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Twitter: @GregCapra
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