Trading Edge 2020 Portfolio - Trade #3 - WES - Short Term Put
Updated
Ticker: WES (right side is XLE for comparative purposes on a weekly)
Position:
- Feb 21st Expiry
- 5x $20 Strike Puts (ITM) - delta = 0.60 - cost = $1.38/ contract
- 5x $18 Strike Puts (OTM) - delta = 0.19 - cost = $0.35/ contract
- Should the stock move to the initial target, the OTM options will be more than covered by the ITM options increase in premium
Profit Target/ Exit:
- Initial target = $18.00 (green line)
- Exit for the $20 strike puts is 2 closes above the daily 21 ema (white line), there is no stop for the $18 strike puts, therefore the full premium is at risk (hence the lower capital allocation)
Rationale:
- shorter term play on the relative weakness of the energy sector
- XLE (energy sector ETF) has displayed a bearish moving average cross and appears to be deteriorating, as well as several stocks within the sector have appeared in my screening process as potential candidates, one of which is WES
- smaller position size, with overall capital allocation only 3.8% of portfolio, so a relatively small trade, that even if it goes against us will do no long term damage to the overall portfolio and still offers a good opportunity for roughly a 70% gain (at initial target)
- WES does appear to be a little on the oversold side of things, so a bounce is certainly possible, this is why the stop is 2 closes above the daily 21 ema, as this should help to keep from being shaken out of the position prematurely
-TradingEdge
Position:
- Feb 21st Expiry
- 5x $20 Strike Puts (ITM) - delta = 0.60 - cost = $1.38/ contract
- 5x $18 Strike Puts (OTM) - delta = 0.19 - cost = $0.35/ contract
- Should the stock move to the initial target, the OTM options will be more than covered by the ITM options increase in premium
Profit Target/ Exit:
- Initial target = $18.00 (green line)
- Exit for the $20 strike puts is 2 closes above the daily 21 ema (white line), there is no stop for the $18 strike puts, therefore the full premium is at risk (hence the lower capital allocation)
Rationale:
- shorter term play on the relative weakness of the energy sector
- XLE (energy sector ETF) has displayed a bearish moving average cross and appears to be deteriorating, as well as several stocks within the sector have appeared in my screening process as potential candidates, one of which is WES
- smaller position size, with overall capital allocation only 3.8% of portfolio, so a relatively small trade, that even if it goes against us will do no long term damage to the overall portfolio and still offers a good opportunity for roughly a 70% gain (at initial target)
- WES does appear to be a little on the oversold side of things, so a bounce is certainly possible, this is why the stop is 2 closes above the daily 21 ema, as this should help to keep from being shaken out of the position prematurely
-TradingEdge
Trade closed: target reached
Exit the trade, book orders for $20 strike = $2.30/ contract (mid offer)
$18 strike = $0.82/ contract (mid offer)
Average profit = 56%
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