While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
I would like to make a suggestion on a stock that is breaking out.
The stock is CVS Health Corp. (CVS)
CVS is trading around $69.75 as I write this.
I am going to suggest a debit spread and trade the January 8th expiration day.
This gives CVS a few weeks to make a move higher.
Here is how you open the position:
Buy to Open January 8th - $70.00 Call for $2.35
Sell to Open January 8th - $75.00 Call for $.85
The net debit will be $1.50 per spread.
Based on the tracking portfolio, I suggest you limit the trade to a 6 lot or .9% of the portfolio.
The maximum gain on a six lot would be about $2,100 or 233%.
CVS has to move above $75 to earn maximum profit.
I am limiting the trade to under 1% of the nominal portfolio because it is just out of the money.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Today, I would like to make a suggestion on a covered call.
The stock I want to suggest is Pluralsight, Inc. (PS).
PS is trading around $16.84 as I write this.
My suggestion is to buy PS at the market, which is $16.84.
After buying the stock, execute this trade:
Sell to Open December 18th - $17.50 call for $.55.
Based on the nominal portfolio, limit the stock purchase to 400 shares
or 6.7% of the nominal portfolio.
This would mean you would sell 4 calls.
If the calls are assigned in three weeks, the return will be 7.2%.
I am going to suggest you close the long $118 December 1st call on Apple today.
Apple is up to $122.71, up $3.63 as I write this.
I know in this morning's update, I mentioned the objective is slightly higher, but because the expiration is this Friday, I would rather book the profit than run the risk of a move against the position.
As a result, here is the suggestion:
Sell to Close December 4th - $118.00 Call for $4.80
This will produce a profit of $1.87 per option, or $1,122 if you traded the suggested 6 lot.
The profit on this side of the spread works out to 64% or $1,122 in total if you traded the 6 lot.
The total profit on the original debit spread works out to $1,770 on a cost of $960, if you include the profit on the short call you should have bought back.
The overall return works out to 184%.
This was for less than a 2 week holding period
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
I am going to suggest you close the PRA position.
This is because of two reasons. The first is that from a technical standpoint, it is overbought short term.
And the second reason is that the options are pretty thin, unlike the BOX position.
Sell PRA at the market, which is $17.01.
The position was put on at $16.45, so this results in a gain of
$.56 per share.
If you traded the suggested 400 shares, the overall gain is $224.
You should have also had a gain of $1 per share if you sold the calls on this position.
Including the call premium collected and the gain, the overall return is 13.7% or $624.
BOX traded as high as $18.48 today and is now around $18.
I am still bullish on the stock, but it is trading right at a key technical level.
And as such, I would like to take this as an opportunity to collect some call premium.
As a result, I am going to suggest a trade on BOX.
Sell to Open (1) December $19 Call for every 100 shares you buy.
You should be able to sell them for 80 cents each.
Based on a sale at 80 cents, it will mean that you will have collected $1.20 per share in call premium.
And if the calls are assigned next month, the profit will be another 8%.
This alert applies to you only if you own shares in BOX.
Today, I would like to make a recommendation on a stock purchase.
The stock is eGain Communications Corp. (EGAN).
EGAN is trading around $11.36 as I write this.
It does have monthly options, but I am not going to suggest you sell calls at this time.
I am going to suggest you buy the stock because this will be swing trade. The idea is that EGAN will follow through on the reversal it is putting in today.
Buy EGAN at the market, which is $11.36.
Based on the nominal portfolio, limit the buy in to 400 shares or 4.5% of the portfolio.