Micron Income Trade
Tracking Appaloosa Management’s Portfolio provides insight into it’s research. If we’ve come to the same conclusion in our own scholarship, we can safely take income trades that provide constant weekly and monthly income. It’s just another way of finding “winning stock picks.”
We are bullish Micron, so we will consider selling covered calls against our existing position (300 shares). Price action, based on the 20dma is trending higher. For the past few days, Micron has consolidated recent gains, moving sideways into the 9ema. In addition, we saw buyers step up at the lows as price touched the 9ema on Tuesday. RSI and MACD are exhibiting a bullish trend.
Micron Technology, Inc. is estimated to report earnings on 06/29/2017, so any income trades we take should expire before that time.
If you are very bullish on Micron Technology Inc. (MU), you could generate $111 by trading covered calls. You could sell 3 contracts of MU 2017 16-JUN 31.00 CALL. If the stock were to rise before expiration you could make a profit of $705. This trade will also render 1.3% of downside protection for our position.
- Premium received: $111
- Potential Profit if MU is Above Strike: $705
- Break Even (Stop): -1.3% Sell here and you lose nothing but time.
This is the trade we will likely take, where we look to generate a minimum, $192 by trading covered calls. We intend to sell 3 contracts of MU 2017 16-JUN 30.00 CALL. If assigned, we will make a profit of $486 if nothing changes. However, we would like to see Micron move higher and take this trade near the upper Bollinger band. If nothing changes, this trade will render 2.2% worth of downside protection for our position.
- Premium received: $192
- Potential Profit if MU is Above Strike: $486
- Break Even (Stop): -2.2% Sell here and you lose nothing but time.
Since we think Micron will push higher in the next couple of days, we will wait to sell these covered calls, collecting more premium in the process.
We do this on a regular basis, as our secondary intention is to always generate weekly and monthly income against our existing positions, in addition to capitalizing on the appreciation in shares in our portfolio.