Markets are starting another new week hanging out near all time highs. This has become the story for the last 3-4 weeks as many stocks have made runs towards the highs.
As a result we are finding numerous opportunities to position our options trades to benefit from a pause or a pullback over the next few weeks.
For our Options Trade Of The Week we will be trading Micron Technology (Symbol: MU).
Why Micron Technology?
The stock has gone from $32/share back in early June all the way up to $47.50 on the highs today. That is a huge move and leaves MU in overbought territory.
At the highs today we hit a 2 Standard Deviation Channel move on the upside. This means only 2% of all occurrences happen outside of this type of move to the upside.
While it doesn’t mean MU can’t move higher from here, it does mean it’s not statistically probable. In fact, when we have seen this pattern historically it has meant a period of consolidation or a price reversal is coming very soon.
Short Call Spread – MU
Because MU is so overbought, we want to place a neutral to bearish position which would benefit from a choppy stretch or a reversal lower. We are going to be selling the 16 Aug 19 48/50 call spread.
These are the monthly options with 25 days left to expiration. We are selling the 48 call and buying the 50 call at the same time.
We are looking to collect $.66 or $66 per spread while risking $134 per spread.
Using a call credit spread would allow us to make money from:
- Time decay adding up and every day that passes allows us to make money
- Volatility decreasing. If volatility starts moving back down that will cause the options to get cheaper.
For a complete break down of our Trade Of The Week make sure you review the video below. You will learn the details of how we are placing trade trade including how we plan on managing it from start to finish.
We also review 2 of our previous Options Trades Of The Week so you can see how we are currently managing those open trades.
Feel free to contact me directly with any questions you might have. Mike@netpicks.com.