Quick Take: Low Cost Bearish Call Hedge Strategy
Time Frame: One to Twelve Weeks.
Stock: Bearish Market Edge Opinion – Short Stock Position.
Desired Stock Price Direction: Sideways to Down.
Option Position: Short ATM Call – Long ATM +1 Call (Bearish Call Credit Spread) and Long ATM Deferred Call.
Desired Result: Stock stays flat or moves down in price.
Maximum Risk: The stock rises in value. The loss is offset by the amount of the credit spread and the appreciation in the deferred anchor call.
Summary: If the stock stays flat or moves down, the credit spread will expire worthless and you will keep the credit. However, the deferred call will increase in value in line with the short stock position price decline. If the short stock position moves up, the loss will be offset by the amount of the credit spread and the appreciation in the deferred anchor call.
The following are this week’s Low Cost Call Hedge Selections. Each week, if conditions warrant one or more new stock positions are added to the Open Positions list. These stocks have a Bearish technical Opinion from Market Edge. The stocks and option spreads are added to the portfolio based on Monday’s opening prices. The stocks are removed from the portfolio after twelve weeks or if the Market Edge Opinion is upgraded from Bearish. To access The Low Cost Call Hedge informative booklet click on the Get The Booklet tab located on the home page or at the bottom of this page.
Current Low Cost Bearish (Short Stock) Call Positions
New Positions: AXP
On 02/26/2021, The current technical condition for AXP is strong and the chart pattern suggests that upward momentum should continue. The stock has outperformed the market over the last 50 trading days when compared to the S&P 500. MACD-LT, an intermediate-term trend indicator, is bullish at this time. Chart formation indicates a strong rising trend. Upside momentum, as measured by the 9-day RSI indicator is positive but is beginning to slow. The stock is in a short-term overbought condition based on a Slow % K stochastic reading of 80 or higher. Over the last 50 trading sessions, there has been more volume on up days than on down days indicating that AXP is under accumulation, which is a bullish condition. The stock is trading above a rising 50-day moving average. This validates the strong technical condition for AXP. The stock is above its 200-day moving average which is pointed up indicating that the intermediate term trend is bullish.
| The Market Edge – Market Posture: | Bullish | ||||||||||
| Current Stock Price Is Monday Morning | |||||||||||
| Initial | Current | Short Put | Long Put | Initial | Initial | Initial | |||||
| Long | Stock | # Of | Stock | 03/05/21 | 03/05/21 | Credit | Anchor Put | Anchor Put | Anchor Put | Approx | Approx |
| Stock | Price | Weeks | Price | Strike | Strike | Spread | Exp. Date | Strike | Debit | Div Date | Div |
| AXP | $139.44 | 1 | $139.44 | 140.0 | 138.0 | $0.91 | 06/18/21 | 135.0 | $8.15 | ||
| ATM = At The Money. SP = Strike Price | |||||||||||
| Closed Positions | |||||||||||
| # Of | Close | ||||||||||
| Stock | Weeks | Price | % P/L | Reason | |||||||
| AAPL | 11 | $124.26 | -5.9% | Downgrade | |||||||
The information contained herein has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed. Past performance is not necessarily indicative of future results. Traders should read The Option Disclosure Statement before trading options. No representation is made that any account is likely to achieve profits or losses similar to those shown. Due to the possibility of human and/or mechanical error by The Optionomics Group LLC, Inc., its sources or others does not guarantee the accuracy, completion or availability of any information contained herein and is not responsible for any errors or omissions or for results obtained from the use of such information.