LNG broke above resistance yesterday, setting up a bullish scenario in the short term, with earnings scheduled for 02-17-2017.
Technical Setup:
RSI is rising, Bollinger Bands are expanding and MACD crossed on Thursday. Price is above VBP resistance with major VBP support at 42.50 (+/-). Volume is present, showing institutions are interested.
We would like to take a long position today with a 2% stop at 42.50.
Over the next couple of weeks we plan to offer alternate income trade scenarios as an additional service. Existing members will be offered a special upgrade price. More information will follow prior to launch of this service.
Example income trade: We plan to take a covered call position on Cheniere Energy for credit up front as an added incentive. We intend buy 1000 shares of common stock after the opening range, looking to generate $970 credit, by selling 10 contracts of the LNG 2017 17-FEB 47.50 CALL (monthly).
If the stock were to rise before expiration, we stand to make a total profit of $4,020. This represents the difference between the current stock price and 47.50 plus the option premium or credit received. This trade will also give us 2.2% worth of downside protection, our stop, should LNG pullback in this otherwise bullish scenario. In essence, the premium received protects us from losses up to a markdown of 2.2%.
If we felt more neutral, we could generate $1,870 of premium, by selling 10 contracts of LNG 2017 17-FEB 45.00 CALL, rather than the more aggressive 47.50 strike.
If assigned, we could make a profit of $2,420. This represents the difference between the current stock price and 45.00 plus the option premium or credit received. This trade will also give us 4.2% worth of downside protection, if the stock should pullback. Our stop is 2.2%, so this is more than enough insurance.
We could also look at a similar trade on BRS, for which we already have a position. We could sell covered calls today as an income play.
We are bullish on BRS, so we would like to generate $625 by selling 5 contracts of BRS 2017 17-FEB 22.50 CALL. If the stock were to rise before expiration we stand to make a profit of $1,280. This trade will also gives us 5.9% worth of downside protection with a stop at 19.95.
BRS has scheduled earnings for Feb 13, 2017. We would exit the trade prior to that date.
Obviously, selling covered calls limits our potential upside, but probabilities of a large move before expiration in either stock are measurable.
At some point in the future we plan to offer this type of trade scenario as an additional service. Until then we will share with the members.
Happy Trading – Vinny
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