Today, we recommend entering a short-put trade on Meta Platforms Inc. (META).
This week, the market is down again on a repeat of the "good news is bad news" pattern. Strong manufacturing numbers this morning and what we expect will be a very good labor report on Friday have set investors on edge.
The issue is that traders think good economic data will lead the Fed to postpone a rate cut in June. That concern isn't unreasonable, but it doesn't follow that the market (even tech stocks) can't rise if rates aren't lower. Both things can happen at the same time — the market's performance so far in 2024 is proof of this, as rates are up more than 14% while tech is up 12%.
In light of META's surprising strength on an otherwise volatile day, we like the idea of selling puts with a strike price below technical support. Additionally, Predictive Alpha still has a strong bullish projection (+4.34%) for the stock over the next four weeks.
To ensure you maintain as much control over your entry price as possible, we recommend you...
Set a limit order to sell to open the META Apr. 26, 2024 $480 Puts (META240426P00480000) for a minimum price of $17.20.
Some traders prefer a short vertical put spread to an outright short-put position.
A spread has the advantages of limiting risk, a much lower margin requirement, less risk of exercise, and can be used in some retirement accounts. However, it will also result in a lower premium payment and return.
For traders interested in using a short vertical put spread, we recommend the following...
Set a limit order to sell to open the META Apr. 26, 2024 $480 Puts (META240426P00480000) for a minimum price of $17.20.
Buy to open the META Apr. 26, 2024 $460 Puts (META240426P00460000) for a maximum price of $12.00.
Note: The prices of the two legs of a vertical spread can shift quickly. We recommend targeting a net credit of $5.20. So, if the price of each leg has shifted beyond our recommended maximum or minimum, but a net credit of $5.20 is available, we still recommend the trade. If you are unfamiliar with spread trading like this, check out our educational videos below...
On Mar. 26, we recommended a long call position on Dropbox Inc. (DBX) to take advantage of Predictive Alpha's upside target. Option prices are very volatile, and because DBX is down a bit today, the price of the options has fallen.
The bad news is that wide price swings can be frustrating and unnerving. The good news is that it doesn't take much for the stock to rally and our calls to jump into profitable territory. We recommend holding the trade for now because general market conditions are the issue (versus a problem with DBX itself). We will keep you updated if we think an exit makes sense in the short term.
Charging Forward with A.I. On Our Side
Timing is everything when it comes to these trades, so head to your app store now, download the free TradeSmith app, and enable push notifications… because the next great trade is right around the corner!
To view the entire Predictive Alpha Options portfolio, please click here.
Sincerely,
John Jagerson & Wade Hansen Analysts, Predictive Alpha Options
P.S. For any questions or concerns, check out your brand-new Frequently Asked Questions page, which you can access here. Otherwise, reach out to or contact your Customer Concierge Team at 866-385-2076 or JohnandWade@tradesmith.com Monday through Friday, 9:00 a.m. to 5:00 p.m. ET. Our dedicated team will be glad to assist you.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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