Today was a stellar day on the Street. The dingy old Dow didn’t just participate; it led the charge for a change! Banks were booming as well with financials finally seeing some much-needed sector rotation. Luckily we mentioned the space in the Options Report so it should have been on your radar. The second sector selected over the weekend was XOP, and she was flying high today as well.
Here’s my fist.
I noticed coach Gino’s breadth indicator saw its first close above 50 since June 13th, so participation is rising to confirm the power of the buying binge.
In celebration of today’s profit shower, let’s highlight a few recent trades. On a side note, I plan to resurrect my “Month that Was” series that I left by the wayside at the end of last year. Keep an eye out for the return installment in August. It includes a retrospective on my trading performance.
A recent Options Report included FedEx as an oversold bounce candidate. Let me share how I traded it. This will illustrate the benefits of bull put spreads, scaling-in, and proper management.
On June 25th, FDX was deeply oversold, and I thought due for a bounce. To play it I sold an Aug $220/$210 bull put spread for $1.35 (see #1 in chart). The initial plan was to take profits around 35 cents or add another batch if the spread value lifted toward $2.70.
After popping the next day nicely, the stock plunged another $10 toward $222. On June 28th, when FedEx started to form the bottoming tail, I deployed a second Aug $220/$210 bull put spread for $2.90 (see #2 in chart). The profit target was $1.90. Because FDX had fallen so far, I also decided to modify my initial target from 35 cents to 75 cents.
Here were the trade details as of the end of day June 28th:
FDX @ $226. Aug $220/$210 bull put near $2.80.
Short $220/$210 bull put @ $1.35 credit, target 75 cents.
Short $220/$210 bull put @ $2.90 credit, target $1.90.
Over the next few days, FDX chopped higher and on July 3rd (see #3 in chart), my profit target filled closing my second bull put at $1.90 locking in a $1.00 gain in the process.
Let’s pause an mention a few key takeaways before moving forward.
First, the oversold setup in FDX on June 28th was more attractive than the posture at my original entry on June 25th. Because I entered with a partial position, I was able to add size at the more advantageous entry. Traders who don’t scale-in can’t do this.
Second, because stock prices rapidly rocket back from oversold positions, bull puts entered near the low often hit their profit targets quickly. In this instance, the vertical spread moved from $2.90 to $1.90 in only three trading sessions – even though there were still some 45 days remaining to expiration.
With today’s pole vault in FedEx, the remaining bull put has fallen back to $1.05, a stone’s throw from my target. All we need now is a bit of upside follow through, and we should be able to close out this successful saga of put selling.
Was I early (read: wrong) on my FedEx read? Yes.
Did I lose money? No.
How? Proper management, of course! ‘Tis the secret sauce of all successful loss circumventions.
Financial freedom is a journey
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