The market is uncertain here after the collapse in the broader markets and following robust rally, so we want to stay fairly neutral until we get more clarity. However, we found two ideas which appear high-probability if they trigger based on the strategy suggested.
Below is a daily chart of Philip Morris International Inc. (PM), $116.82.
Trade: Over, $117.13, consider shorting Sep (9/15) $110 naked puts (30 DTE) for a limit of $.40/share.
Technical Setup: Breakout from daily consolidation, uptrend monthly.
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: $114.68.
Below is a daily chart of iRobot Corporation (IRBT), $103.28.
Trade: Over $105.44, consider shorting Sep (9/15) $95/90 bull put spread (30 DTE) for mid-point (closed at $.85/share).
Technical Setup: Bullish consolidation daily/weekly, strong uptrend monthly.
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.
Stop Loss: $100.38.
Adjustments and Comments on Open Advisory Letter Trades Note: Our Trade Updates are timely posted in a separate Report in the Member’s Area. Please see that document for a current reflection on all Open and Closed Trades since the spreadsheet updates immediately and will always be more current than this e-mail update. Thank you.
NOTE: Please see Master Trader Guidelines for Trading the Open and Gaps in Member’s Area for rules on trade entry, gaps, etc.
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
Chief Options Strategist
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