Posted on January 13, 2020
Line it up, sports fans. We’ve got a full roster of trade closures for you, and your participation is required.
So put down those Chick-Fil-A Waffle Fries and grab a fountain pen – all the better to engage the geyser of profits we’re about to announce.
We start with this –
On August 14th we penned a letter called How to Profit From the Ridiculous Divergence Between the Price of Oil and the Drillers. There we encouraged you to buy the USO January 15th (2021) 10.50 PUT for $1.36 and sell the XOP January 15th (2021) 16 PUT for $1.34. Total debit on the trade was $0.02.
We got tired of waiting for this thing to balloon, so we’re calling the IRS and shutting her down.
The USO 10.50s go for $0.65 and the XOPs for $0.58. Sell off the former and buy back the latter and you net a nickel on two cents laid out. That’s 250%, and it beats a stale bagel from Panera’s.
Good on all who went in big.
Exactly one month ago, we issued a transport-based trade called Cruise the Seas for American Gold, in which we recommended you consider purchasing the SEA June 19th 8 CALL for $2.25 and selling the STNG March 20th 42 CALL for the same $2.25. Zero premium was the result.
And today – good news.
The SEA CALLs trade at $2.18, while the STNGs fetch $1.45. Sell off the former, buy back the latter and you net $0.73 on bupkus spent. Adjusted for minimal commissions gives you a 387% return in a month.
That’s 4,640% annualized for those in need of a calculator.
Thanks. We intend to.
But first, a word on commissions.
These days, nearly all the major online brokers are offering free commissions for both options and stock trades.
Competition for your business is fierce, and while we have no immediate interest in suggesting one trading platform over another, we would encourage you to take advantage of the offers that are out there. Our research suggests this will not end soon. And the savings for those who trade regularly can be significant.
Do some looking around. Ask friends and colleagues. The number of option traders has grown significantly in the last two and a half years, and we say – if you’re in the game, do it right.
Some outfits will require minimum account sizes, while others ask for a minimum number of trades per month. But not all. It’s worth it to dig around.
As for the other trades, we have a full-fisted five expiring by week’s end. Stay close to your monitor, and wait like a saint for Alan B. Harvard’s Climbing the Wall of Redemption. He’ll be advising on any necessary actions before then.
We’re turning now to the financial sector, because that group has performed exceptionally well over the last quarter, but appears now to have reached an inflection point.
Have a look here –
This is the Financial Select Sector SPDR ETF (NYSE:XLF) for the last half year.
And what’s she showing?
Well, after a strong bull move that began in August, sector momentum began to wane in early November, as seen in the divergent RSI and MCD reads (in green, at bottom).
The stock continued to gain for another month, but since mid-December she’s been range bound (in red), and speculation is rife over which direction the coming break will ensue.
Our opinion is there’s still upside here.
We haven’t seen three, clear fan-lines higher, nor has there been a definitive RSI overbought indication, two sure-fire signals that a top is in.
And that brings us to Morgan Stanley (NYSE:MS).
Among the leaders in the financial sector is Morgan Stanley, a stock whose beta exceeds that of his banking brethren by a longshot and to whom we turn our attentions today for a trade.
This is MS for the last six months –
Technically, there’s good reason to assume further gains are in store.
We admit that MS will have to return to her longer term moving averages down the road. The break above the 411 day MA was never truly tested. But we don’t believe that’s the stock’s immediate direction.
Sentiment is too cold.
After an incredible three month run, too many are doubting the current rally’s strength.
And that’s just fine by us.
So we’re playing it like this –
We’re selling a PUT spread on MS to buy a Call spread.
A Jew and His Money recommends you consider selling the MS April 17th 49 PUT for $1.21 and buying the MS April 17th 45 PUT for $0.52. Then, buy the MS April 17th 52.50 CALL for $2.32 and sell the MS April 17th 57.50 CALL for $0.50. Total debit on the trade is $1.13.
Maximum loss on the initiative is $513.
Maximum gain is $387.
With kind regards,
Hugh L. O’Haynew