Option Income Trades
Below is a daily chart of SunPower Corporation (SPWR), $7.22.
And below is its monthly chart. With SPWR approaching its breakout area of late 2012, it could even be setting up for a core long trade. We will keep an eye on it, but just wanted to present an option selling play here for the short-term bottom setup.
Trade: We recommend selling 10 Dec $7 puts (10 DTE) for $320 and selling 10 Jan $6 puts (45 DTE) for $250.
Strategy: Breakout daily after multi-week stabilization following climactic sell off from over $30 on the monthly charts.
Max Gain: Credit received of $570 which is realized if the stock closes above the respective short strike by expiration. The ROI on margin is huge for this low priced stock.
Max Loss: If assigned, will have a cost basis of $6.68 on the Dec $7 puts and $5.75 on the Jan $6 puts.
Breakeven: Short strike price less premium received.
Stop Loss: $6.48
Adjustments and Comments on Open Trades
FSLR – Shorted 10 Nov $35 puts for $580. Got assigned, so sold 10 Dec 32.5 calls for $1,700, converting the position into a covered call.
FB – Shorted 10 Dec $115/110 put spread for $1,220.
CF – Shorted 10 Dec 22.5 puts naked for a limit of $.15/share and $.20/share and for an average basis of $.175/share. Move stop break even.
TBT – Purchased 1,000 shares at $40.00/share as core trade. With TLT (bonds) strengthening, TBT (yields, which move inverse to bonds) is falling; thus, we sold the Dec 40 calls for $1450 to lower cost basis to $38.55/share.
TBT – Shorted 10 Dec $40 puts for $1,400 as income trade.
ESRX – Shorted 10 Dec $72.5 puts for $910. Currently trading at .29 x .30, so move stop to .45 to lock in 50% of max gain if it weakens.
TER – Shorted 10 Jan $24/21 puts (i.e., a bull put spread) for $520.
UNH – Shorted10 Dec $145 puts for $1,750 (core trade if assigned).
UNH – Shorted 10 Dec $140 puts for $850 as income trade. Currently trading at .16 x .23, so move stop to .42 to lock in 50% of max gain if it weakens.
FXE – Shorted 10 Dec $101.5/98.5 bull put spread for $38o. Moved up nicely, move stop break even.
Note: We are watching various short bear call spread candidates on airlines (e.g., UAL, AAL, DAL) as they have had big moves and are showing signs of stalling now.
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,
Founder of The Pristine Method of Trading