Review of Broader Markets
Review of Broader MarketsThe broader market have continued their choppy sideways price action. That price action has now continued to the point of ad nauseam. It seems that the markets might be “on hold” until after the outcome of the Presidential election. Stock options have been the better instrument for swing trades. However, earnings season has caused some stocks to move either up or down with at least some momentum, allowing some stock and option trades.
This election outcome may be one of the most anticipated in history. All Presidential elections outcomes are, of course, but this one I think will have many more happy — or disappointed — people than in any other time. That is at least within my relatively short memory of elections, anyway.
There isn’t much more to say than what has already been said about the broader markets in prior updates. The charts above of the four indices show the choppy price action. There is no advantage either long or short right now, so we will stand aside as far as the broader markets are concerned. This is why we have been fairly inactive in our trade suggestions. We slow down when the odds reduce and trade aggressively when the odds are aligned with our bias.
As you can see from the sector matrix of ETFs and market internals, there is little advantage in most sectors or internals. One ETF, the Pharmaceuticals, is in a downtrend in all time frames. While a bit extended to the downside, we are not ready to “bottom fish” here yet to the long side. This is still a “stock picker’s environment,” so to speak.
Wealth Building Option Trades
Trade: We recommend selling 10 Nov $15 puts and buying 10 Nov 12.5 puts (i.e., a bull put spread) at its closing mid-point price of $.85/share or better. Note: Higher risk since earnings 10/27. Based on the oversold monthly chart and stabilizing weekly chart, we are putting this in our Wealth Building category in case we get assigned it at $15/share.
Strategy: Breakout daily from higher low consolidation.
Max Gain: Credit received of $850 which is realized if the stock closes above the short strike by expiration.
Max Loss: $1,650 if closes below the long strike price.
Breakeven: $14.15 (short strike price less premium received).
Stop Loss: None now.
Income Option Trades
Below is a daily chart of FB (Facebook, Inc.), $132.07.
Trade: We recommend selling 10 Nov $35 puts for a limit of $.53/share or better (closed at $.49 x .56). Note: Higher risk since earnings 11/3.
Strategy: Breakout from huge reverse head and shoulders pattern on the daily and weekly charts.
Max Gain: Credit received which is realized if the stock closes above the short strike by expiration.
Max Loss: $34,470 if went to $0 (but our loss will not be near this amount based on our stop loss).
Breakeven: $34.47 (short strike price less premium received).
Stop Loss: $33.78
Adjustments and Comments on Open Trades
GPRO – Shorted the Nov $14/10 bull put spread on GoPro Inc. for $.76/share, stop $13.28. Note that earnings are 10/27 (holding over earnings higher risk).
PTCT – Shorted the Oct $10 puts at $.25/share. Stopped out break even.
MU – Shorted the Nov $18/20 bear call spread for $.40/share. Maintain stop break even (closed with mid-point of $.25).
ADI – Shorted the Nov $65/70 bear call spread for $.70/share). Move stop $64.22 (closed with mid-point of $.45).
DG – Shorted the Nov $65/60 bull put spread for $.70/share. Move stop to break even.
M – Shorted the 10 Nov $34/30 bull put spread at $.60. Maintain stop $34.48.
Watch List
Bear call spread candidates – NFLX (when breaks down on hourly)
Bull put spread candidates – MS, X, AMZN, GOOGL, WHR, LUV, JBLU, VLO, CVI, TSO, MPC (watch after earnings 10/25),
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
Founder of The Pristine Method of Trading
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Twitter: @GregCapra
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