When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (UNP) – TAKE PROFITS
SELL the Union Pacific (UNP) November 2020 $150-$160 in-the-money vertical Bull Call spread at $9.95 or best
Closing Trade
11-10-2020
expiration date: November 20, 2020
Portfolio weighting: 10%
Number of Contracts = 12 contracts
We reached a monster 30% above our upper strike price this morning with only 8 trading days to expiration. As a result, we can now reap 96.42% of the maximum potential profit. The risk/reward of continuing is no longer favorable.
I am therefore selling the Union Pacific (UNP) November 2020 $150-$160 in-the-money vertical Bull Call spread at $9.95 or best. That means we get to take home $1,620, or 15.70% in only 6 trading days.
When the US economy recovers, you suddenly have to move a lot more stuff. There is no better stuff-moving industry than railroads.
You can subdivide railroads into north/south ones and east/west ones. A Biden administration will bring a revival of east-west trade, thanks to greater exports of commodities, coal, and agricultural goods to China.
Note that I have been clever here by picking an upper $160 strike. That is right where we get enormous technical support from a double bottom on the charts that stretches back to June.
Stock players should keep the shares, which probably have a double in them over the next three years.
DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
Simply enter your limit order, wait five minutes, and if you don’t get done, cancel your order and lower your offer by 5 cents with a second order.
This was a bet that Union Pacific (UNP) would not fall below $160 by the November 20 option expiration day in 14 trading days.
Here are the specific trades you need to exit this position:
Sell 12 November 2020 (UNP) $150 calls at…….......…….………$52.00
Buy to cover short 12 November 2020 (UNP) $160 calls at…...$42.05
Net Proceeds:……………………..…….………..………….….....$9.95
Profit: $9.95 - $8.60 = $1.35
(12 X 100 X $1.35) = $1,620, or 15.70% in 6 trading days.
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
The Case for Railroads
When copper and Freeport McMoRan (FCX) run up, there is one thing I always do automatically, reflexively, and without thinking about it.
I buy railroads.
This is because a revival of Chinese infrastructure building is driving the recent meteoric rise in the red metals.
The US is one of the largest producers of copper, fourth in the world after Chile, Peru, China, with 1,520 metric tonnes in annual output.
So, how does the metal get to the Middle Kingdom?
It rides the Union Pacific Railroad (UNP).
(UNP) has predominantly East/West routes, and will benefit the most from increasing trade with China that will come with a new Biden administration.
China will finance half of any US government debt going forward to finance the president’s substantial spending plans, so there isn’t going to be a trade war here.
If you want to reduce your risk, buy the iShares Transportation Average ETF (IYT). The two largest holdings here are (UNP) and Kansas City Southern (KSU).
Baskets of shares always have lower volatility than single stocks, but lower returns as well.
Buy the railroads. At least if you are early, you still have a functioning, cash flow-positive business.
Railroads all look like ripe “buy on dips” low hanging fruit to me.
