Investor Spotlight

Sunday, March 5, 2017

Low Risk Trade

In my post last week, I had highlighted a detailed case study on $CMA where you only risked less than $1,000 to gain +45% in 12 sessions. I gave my reasonings behind the decision to carry out a Low Risk Bullish Debit Call Spread on this stock instead of buying the stock. The financial sector had been leading since the 'follow thru' day after the elections on Nov 9th and most stocks were extended beyond their ideal buy points. It is risky to chase the stock once they get beyond the +3% past the proper buy point. Utilizing Options Spread Trade on extended stocks is one way to profit from the momentum that we have in the market under current environment.

Low Risk Trade on $AVGO

In my post on January 23rd, I had highlighted $AVGO as one of the stocks on My Watch List that week. The stock was trading at $191 at that time and currently it is +14% The stock has been trading along the 8 day ema (exponential moving average) ever since it appeared on my watch list on January 23rd. It consolidated for 3 weeks in February to give us another opportunity to add to our position when IBD(Investors Business Daily) identified $208.85 as a 3 weeks tight base entry point. Earnings was being reported on March 3rd and that precluded us as traders to exercise the stock position until after the earnings report. Stock is now extended beyond +5% past its ideal buy point after the earnings report. The stock is still trading along the 8 day ema and the market is still in a confirmed uptrend. The question that most traders ask now is "Is there a way to still profit from this extended stock?" My answer is "Yes"

Bullish Credit Put Spread on $AVGO

$AVGO trades over $600 million (daily volume of shares X price of stock) daily. It is a very liquid stock and there are weekly options available on them too. This allows us plenty of opportunities to do a very short term trade to profit from the momentum that we are experiencing in the market right now. Here are the trade details that one can exercise on Monday morning (not a recommendation but an exercise to practice virtual trade to learn from)

Trade: Buy 8 contracts Mar17 $212.50 put and Sell 8 contracts Mar17 $215.00 put for a Credit of $510:$990 Risk

Manage Trade: Monitor the trade to lose no more than -50% of the risk ($445) and close out the trade when +80% ($400) of credit is attained. We are looking for the stock to stay where it is or move just +3% from its current price in the next 2 weeks. Close out the trade for loss if the stock moves -3% from its current price

Mentoring Service

If you would like to learn:

"How I Build My Stock Watch List and How I Execute and Monitor Trade"