This post was originally written for r/RealDayTrading Mar 29, 2021
I intentionally removed the symbol from the charts because I want beginners to focus on the method, not the actual trade. My market bias is neutral to slightly bullish for the next few weeks so I want a strategy that matches that market forecast (bullish put spread). I want a stock that has heavy volume, relative strength and a breakout through resistance. I will sell the bullish put spread below technical support and that short strike price is my stop (a close below that level). If the SPY closes below the 50-day MA I will also consider closing the spread. I am staying near term because I want to make sure that I can take advantage of accelerated time decay and selling below the 1 SD will also increase my odds for success. In this case I have to put up the difference in the strike prices less the credit received or $2.00 ($2.50 – $.50). My return is 25% ($.50/$2.00) in 3 weeks if the spread expires.
Here are more details and the supporting charts. I hope this process helps those of you who are starting to trade options.
- I am looking for a bullish search
- I want a stock that is moving higher on heavy volume when the market is down.
- The stock has broken through horizontal resistance and it bounced off of that support.
- The stock has a nice uptrend that lends support at $232.50 (short strike)
- The stock is through the downward sloping trend line and this looks like a bullish flag formation
- The $232.50/230 bullish put spread is 1 standard deviation OTM.
- The stock is strengthening vs SPY
- The stock is up when the SPY is down and it has been able to hold its opening gap up.
- The stock is strong relative to the SPY on 5 min chart
- The earnings date is after the options expiration.
- Spread is $.40 x $.70. I feel a $.50 credit is likely to fill. You have to put up $2.00 in margin to make $.50 in the next 3 weeks. April (16) expiration will have accelerated time decay on the options.