New Bullish Option Trade in Uncertain Market
We have been watching Dollar General Corp. (DG) for weeks for the proper long setup since its collapse from $95+ a few months ago. Last month it looked like it was building a bullish base but failed. NOTE: DLTR has a similar pattern but the illiquid options make it untradable to us.
That is not a reason to stop watching it because of its massive selloff near major support areas. In fact, we love these setups as they trigger additional stops on the longs (and even attract new short sellers). So, patiently, despite the nervousness of the broader markets, it appears to be making a bullish cup and handle pattern on the daily — a bottoming/consolidation pattern.
Below is a daily chart of DG.
Trade: We recommend selling 10 Nov $65 puts and buying 10 Nov 60 puts (i.e., a bull put spread) for a limit of $.70/share (the natural mid-point now is now $.65/share intra-day and it is somewhat extended), generating $700 of premium.
Strategy: Climactic buy setup monthly on major support after a shakeout daily.
Max Gain: Credit received ($700) which is realized if the stock closes below the short $65 strike by expiration.
Max Loss: $4.300 if closed below the long strike price of $60 (but our loss will not be near this amount based on our stop loss).
Breakeven: $64.30 (short strike price less premium received).
Stop Loss: $66.38
Adjustments and Comments on Open Trades
GPRO – Deep, unfortunate retracement but maintain stop.
M – Maintain stop.
MU – Move stop break even.
ADI – Move stop break even.
QQQ – Long calls stopped out.
PTCT – Move stop break even.
EBAY – Long stock suggestion never triggered, so cancel.
NOTE: With the bearish gap on BMY and stabilization on the hourly chart, we are watching to sell puts on it. Also watching short-term bounce in gold stocks.
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@gregcapra.com or Dan Gibby at Dan@gregcapra.com
All the best,
Greg Capra
Founder of The Pristine Method of Trading
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Twitter: @GregCapra
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