International markets continue to perform very well. The heat map reflects these observation, trending in a bullish direction for most of the markets that we follow.
The heat map is one tool that we utilize on a weekly time frame. We find it prudent to monitor this visual indicator, as subtle changes alert us rotation and to potential opportunities. Since the trend is bullish, red to green, we remain bullish in our 401(k) and IRA positions. We have exposure to the Vanguard International Index Fund (VTSNX).
Let’s consider one of these international markets, for Income Potential.
EWZ iShares MSCI Brazil ETF is an example of an international market in a bullish trend. We could trade this straight away or we could write covered calls. Price is beginning to move above VBP resistance (dashed HL) and the pivot high in October 2016 (38.02). This support level is significant in our thought process, as the biggest threat to covered calls writing is a pullback in the underlying. Additionally, the 200ma is sloping upward and price is above the 9/20ema.
Assumption: We will buy 500 shares of EWZ.
If you are neutral on the Brazil Index ETF (EWZ)
You could generate $730 by writing covered calls. You could sell 5 contracts of EWZ 2017 19-MAY 38.00 CALL. If assigned, we stand to make a profit of $780. This trade will also provide 3.9% worth of downside protection for our position.
- Premium received: $730
- Potential Profit if EWZ rises Above Strike $780
- Downside Protection: 3.9% (This is your break even)
If you are bullish on the Brazil Index ETF (EWZ)
You could generate $510 by writing covered calls. You could sell 5 contracts of EWZ 2017 19-MAY 39.00 CALL. If assigned, you could make a profit of $1,060. This trade will also provide 2.7% worth of downside protection for your stock.
Premium received: $510
Potential Profit if EWZ rises Above Strike: $1,060
Downside Protection: 2.7% (This is your break even)
Checking futures as we go to print, ES is lower, Crude and Gold futures are higher. Consider trading gold miners, gold futures or one of the Gold miners ETF, as we could see a retest of the 50ma on the S&P500. A descending pattern is still playing out on the daily time frame.
Happy Trading – Vinny
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