The broader markets chopped sideways last week, and are range-bound between price support and resistance, which was what we were expecting. That worked out great for our Apple (AAPL) weekly income trade.
Ideally, the broader markets will continue to follow through on Friday’s weak close lower and that will be great for our SPY Income trade.
The SPY trade is almost 50% to our max profit. While tempted to take what is on the table now, the only way to make that max profit is to hold and see what unfolds.
Above is the chart of the S&P 500 Cash Index. Last Monday, prices tested Major Support (MS) where buyers stepped up and they continued to do so on Tuesday. But that ended it for the week and Friday’s weak close and Topping Tail (TT) suggests prices should move lower – – if they trade under that low. Above the Topping Tail (TT) and we might see a test of Major Resistance (MR), which would hit our lowered stop on the SPY trade.
Above the TT and we might see a test of MR, which would hit our lowered stop on the SPY trade.
Below is a daily chart of Unilever N.V. (UN), $59.27.
Trade: Over $59.42, consider shorting Sep (9/1) $57.5 naked puts (5 Days to Expiration (DTE)) for a limit of $.25/share (closed at $.20 x .35/share).
Technical Setup: Breakout daily and weekly, strong uptrend monthly (but is not a quality trend, which is why we are recommending an Income Generating trade versus a Directional one).
Option Strategy: Short Naked Puts (SP). We sell put strike price below support where the pattern suggests that the stock will not close under at expiry. In exchange for the premium received, the put seller has the obligation to buy the underlying stock at the strike price on or before expiry at the put buyer’s discretion.
The Max Gain is the Premium received, which is realized if the stock closes above the short put strike at expiration. The return on investment (ROI) is the credit received divided by the margin required to hold the position. The break-even is the short 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 short strike minus Credit.
Stop Loss: $57.48.
Below is a daily chart of ServiceNow, Inc. (NOW), $110.59.
Trade: Consider selling Sep (9/1) $115 naked calls and sell Sep (9/1) $105 naked puts (5 DTE) for current mid-point of around $.65/share.
Technical Setup: Topping Tail from failed breakout daily, within large trading range daily and weekly charts, time decay strategy.
Option Strategy: Short Strangle.
Stop Loss: $105.98 on the downside; $114.02 on the upside, close losing position.
Below is a daily chart of Tesla, Inc. (TSLA), $348.05.
Trade: Under $347.30, consider shorting Sep (9/1) $370/380 bear call spread (5 DTE) for a limit of $.35/share (closed at $.37/share).
Technical Setup: Range bound with stalled momentum in stock and markets.
Option Strategy: Bear Call Credit Spread (BCS).
Stop Loss: $357.12.
Adjustments and Comments on Weekly Option Trades
8/21/17: AAPL – Shorted Aug (8/25) $162.5/170 bear call spread for $.30/share. Expired worthless for full profit.
8/23/17: SPY – Shorted Sep (9/1) $246/248 bear call spread for $.60/share. Note: Mid-point to close is $.34/share, so almost to 50% of Max Profit. Move stop loss to $245.72 to protect gains.
Sign up for the Master Trader Weekly Options Trader here.
Below is a link to individual videos explaining in greater detail the definitions of the main option trading strategies used in the Master Trader Option Strategies Series for Investors and Active Traders to generate wealth and income.
Video Descriptions of Master Trader Directional and Income Option Trades can be seen HERE
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 of Master Trader
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.
