Trade Alert: Adjust Your CTRA Roll, Add a New Put-Write in CVS
Just a brief trading recap before diving into new instant income opportunities:
First, you should have been filled selling Cisco Systems (CSCO) and VanEck Gold Mining ETF (GDX) covered-call options. However, our roll of Coterra Energy (CTRA) cash-covered puts has not traded anywhere close to the limit prices. So, let's adjust that order now to get filled, as shown below.
Second, we have a timely new opportunity in the healthcare sector: specifically, CVS Healthcare (CVS). This stock triggered a fresh entry signal in the Health Indicator green zone in late December.
Plus, the stock is in a Valley turn area (blue shading below) according to our Trade Cycles timing indicators, which means it's poised to move up into mid-year according to the long-term cycle:
Fundamentally, CVS is rock-solid, with a BQS of 86 and a Strong Bullish rating of 92. In addition, the stock pays you a very generous 3.5% dividend yield while you wait for upside appreciation.
And there's a timely catalyst that makes CVS very attractive right now.
On Monday, Medicare & Medicaid Services said it expects government payments to Medicare Advantage (MA) plans to increase about 3.7% from 2024 to 2025. That was less than Wall Street expected. As a result, shares of several leading health insurance providers took a nosedive, with CVS down about 7% since the news broke.
But here's the thing: CVS is a much more diversified health care company versus other pure-play Medicare insurance providers, including retail and mail-order pharmacy and pharmacy benefits management services. Revenues from Medicare participants accounted for just 19% of the company's total revenue last year, and even less tied to Medicare Advantage plans.
It's a huge overreaction, in classic Wall Street style. And it gives us a great opportunity to buy this quality blue-chip at a discount, while earning an unusually big option premium income to do so. Here's what to do:
Actions to Take...
1. Cancel your previous open order to roll CTRA put options.
New Order: Buy to close the CTRA April 19, 2024, $24 put option (CTRA240419P00024000) and at the same time sell to open the CTRA May 17, 2024, $27 put option (CTRA240517P00027000) for a credit of $0.30 or more, good 'til canceled.
Note: Aim to buy back your existing put option for about $0.05 or less and sell the new option for $0.35 or more, resulting in a $30 net credit.
2. Sell to open the CVS April 26, 2024, $70 put option (CVS240426P00070000) at a limit price of $0.50 or more, good till canceled.
Jump on these trades ASAP and stay tuned for more updates and possible new trades soon.
Good investing,
Mike Burnick Senior Analyst, Ultimate Income
P.S. If you have any questions or concerns, please reach out to me at emailmikeburnick@tradesmith.com and include "Ultimate Income" in the subject line.
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